Preliminary study by the IMF on government personnel costs

ORANJESTAD – Recently the Minister of Economic Affairs, Finance and Culture Xiomara Ruiz-Maduro informed that during two weeks the experts of the International Monetary Fund (IMF) did an investigation on the personnel costs of the Aruban government.

Wage bill is high comparative to comparatorsPublic wage and interest costs are the two biggest components of government expenses on the budget. The reason for this investigation is for the government to get a good picture of the wage costs when making decisions. Wage costs cannot continue to increase and the government has to contemplate lowering them to reach a manageable and sustainable public finance.

In its investigation, the IMF made a comparison between the personnel cost in the public and private sector and made a comparison between Aruba and the countries of similar size.

Government pay is substantially above that in private sectorThe result indicates the government personnel costs (public sector) are substantially higher than in the private sector. Wage costs in the public sector include the government employees and persons treated as such (gelijkgestelden), whose salaries are subsidized by the government. If we compare these two groups, the one that works for the government earns 40% more than the one that works in the private sector, whereas the “gelijkgestelden” earn 20% more than the workers in the private sector.

Public private wage premium remains after controlling for employee characteristicsAs regards the age component, the age of the public sector employees is increasing. This means that eventually, a great number of government employees will reach retirement age. This entails a challenge since the pension age was increased.

Overtime increasing as share of wage billIf one compares the wage cost of the public sector of Aruba with the other Caribbean, Latin American and other countries, the wage of the government employee is higher. Compared with other countries, the government of Aruba also has more employees in its service.

Overtime costs are also one of the components that increase personnel costs. The overtime component comprises 5% of total personnel costs. To reach this percentage, the IMF experts use the figures from 2018. The budget of the Department of Justice has higher overtime costs since overtime pay entails 17% of its budget. Further investigation is required to analyze the reason for overtime.

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