Why Should He Get More Pay or Less Pay?

The big and powerful employers union, Confederation of Finnish industries, (EK for short), has made the following statement in the media this week:

”Salaries in the public sector cannot rise faster than in the private sector.”

Negotiations on the new labor market model for workers’ pay are starting this year here in Helsinki, and EK along with their right-wing friends in government are making sure that wages in the public sector are kept below those wages in the private sector.

This policy objective may seem reasonable, but let’s consider the implications for the economy as a whole, and for the rest of the world…

1. The private sector has no monopoly on productivity, and both the private sector, and the public sector must always set out to achieve improvements in productivity at the workplace. There is no evidence to suggest that the private sector is always entitled to the higher wages compared to the public sector.
2. If such a policy is pursued ruthlessly, it basically means that the public sector will eventually be drained of good quality workers and management because these people will inevitably be attracted to work in the private sector. We can already see how this policy has led to disastrous results in the health-care sector, where doctors and other healthcare workers are in short supply in the public sector because they can earn much more in private healthcare companies.
3. Public sector employers and employees should be allowed to earn market rates, irrespective of the fact that they work in the public sector so long as they are productive and able to improve productivity in the long term. Taxpayers are perfectly happy to pay for excellent public services as we have in Finnish schools for instance, and in many other places where the public sector operates either in publicly own bodies or in publicly owned corporations. In both cases, irrespective of the corporate format, it is essential that both the private sector and public sector have the best possible employees and management.
4. In fact, it would perhaps be more convincing for EK and it’s lobby to demand that the excessively high wages of top management of big private companies be reduced significantly because there seems to be little correlation between the long-term results of many big companies and the salaries of the CEOs and other board members. One just has to look at the results of large parts of the banking industry over the last few decades (see Citibank, Credit Suisse, Deutsche Bank, and many more…). You could also look at companies like Nokia that was destroyed by Apple, and more recently the major Finnish forestry companies that bleed heavily when demand for board and paper has fallen. They naturally enjoyed huge profits when markets were booming, but perform badly now. Just look at the  example of Fortum here in Finland who reaped losses almost €6 billion! Why on earth are these people considered to be better than some doctor working in one of our publicly owned university hospitals? Paying high salaries when easy profits are only seen in good markets is madness if that is the only reason for improved KPIs!
5. Looking at the wider global perspective why do the oil majors that pay huge salaries to their top management when their compulsive drilling and mining for fossil fuels is destroying this planet!

In conclusion, one should see, quite clearly, that there is no objective reason for either sector to demand better working conditions than the other – but they do, and that is not a good argument if it leads to disasters for mankind.