Tying public sector salaries to indicators of overall economic health

[Aimless]

Time for another hypothetical state.

In this one, the salaries of and pension-related payments for public sector employees have three components:

1. A relatively fixed basic income necessary for survival.

2. A negotiable but fixed (over the medium/long term) base rate that is modified by one or more multipliers tied to somewhat reliable indicators of the nation's economic health or status as well as to the public sector's finances. This is the portion that signals overall value of the job relative to other jobs.

3. A negotiable amount tied to duties, skills, performance etc. This is the portion that signals your value relative to your peers.



The purpose of the second component is not to "pay for performance", because there's little public employees can do to directly influence GDP even though a well-functioning public sector may be vital for a well-functioning economy and society. Rather, its purpose is to make it easier to adjust wages, pensions etc. in such a way as to make a little easier for the state to live within its means in times of crisis without having to make premature often irreversible decisions to downsize in ways that cripple its future ability to perform its duties (cutting necessary functions, laying off employees in such a way that remaining employees have an unmanagable burden, etc). Rather than firing people who're technically okay during most circumstances but who aren't as senior or tenured or whatever, you can let the whole organisation share the extra burden that may arise when the economy's shot to shit.

Starting with this basic outline, and presuming (for the sake of argument) that this idea should be explored, what are the most obvious shortcomings with this scheme? What are the most likely consequences? What challenges need to be overcome to make it work better?

I think a few places have tried similar schemes, but I have no idea how they've turned out.

[Dreadnaught]

Why shouldn't public employees get paid well and beyond an income necessary for survival? After all, the "base" salary would vary widely based on someone's location and age, right?

[wiggin]

Why shouldn't public employees get paid well and beyond an income necessary for survival? After all, the "base" salary would vary widely based on someone's location and age, right?

One might further argue that a large part of why public employees are so bureaucratic and inefficient is that the high-skills people needed to manage massive projects like various government programs can command far higher salaries in the private sector, so you get mediocre seconds. I think there are other issues as well - pay based on tenure, difficulties in sacking employees, and the non-portability of pensions and other benefits are big issues that reduce churn, promote ossification, and keep private sector high-flyers out of government.

We could probably do a lot of government jobs with fewer, but more productive and smarter, employees. Changing compensation, benefits, and labor market flexibility would go a long way towards improving this. I'd prefer to see trillion dollar programs managed by the very best people in the world, rather than the 'just okay'.