This article appeared originally in Gulf News: link to original article
The current Covid-19 crisis could be what governments needed to forever alter the dynamics in their job markets. Remote working is one step in the right direction, but additional steps are needed to reduce the size of the public sector and, with it, payrolls.
I mentioned in a previous column that I have been saving money working from home, minus all the online shopping I have been up to. This is one individual’s consumption that is reduced by X amount. Now, what if that is multiplied by hundreds of thousands of individuals who have also been working from home?
Do they all incur similar savings? If the answer is, hypothetically, yes, then what do those savings translate into?
Part of those savings could either be stashed away because of the psychological impact the spread of Covid-19 is having with regard to job security, or it could be spent online, like in my case. For the opportunists, the spread of Covid-19 has also offered ample investment prospects.
Taken at face value, individual consumption tends to drop during a pandemic, while savings tend to crawl upwards. So, if individuals are barely spending in an economy, who is? The government.
A government’s role in an economy grows as it becomes the main consumer in the market, keeping economic activity going by spending from its revenues, reserves, or through borrowing. Borrowing is not a problem as long as the incurred debt levels are manageable post-crisis.
The problem here is that governments need to spend at a time when economic activity has either slowed down or has been brought to a standstill. The drop in economic activity means governments are not generating revenues from traditional sources, such as fees, sales taxes or VAT, as well as tourism- and aviation-related taxes.
Likewise, lower oil prices added another level of complexity, subject to how reliant governments are on oil exports. Moreover, individuals are mostly staying at home because of lockdowns, which result in lower domestic fuel consumption. Coupled with low oil prices, whatever fuel that is sold locally makes little money for governments.
Now, add to this an inflated public sector that many governments suffer from, with a sizable payroll bill to go with it. So, governments are making less money, from oil and non-oil sources, with regular bills to be paid and additional bills coming due because of the Covid-19 crisis.
Thus, and in order not to completely deplete reserves, governments have opted to borrow and to cut costs in whatever way possible. One way to do the latter is to evaluate public sector employment and its payroll, as remote working, encouraged by the spread of Covid-19, exposes redundancies in public sector employment.
A cost saver
Remote working, therefore, provides an opportunity for a major, but carefully calibrated, correction to take place in the job market. Such an overdue correction will need to be prudently planned and executed to minimise government’s role in the job market, but with the right social safety net in place, whether in times of crisis or not.
To do so, specific steps must be taken in the short- to medium-term to ensure the situation in the job market is sustainable in the long-term.
First, and rationally speaking, governments need to temporarily suspend transport-related allowances for as long as public sector employees are working from home. Multiplied by the total number of public sector employees and an X number of months, the result could be a staggering sum. This way, part of the savings in an economy will accrue to governments by reducing payroll expenditure.
Secondly, all government jobs must be evaluated against current and future government needs. This means more careful and selective government hiring, which will subsequently allow the private sector, given other conditions are in place, to assume a bigger role in the job market.
One cannot take place without the other here, where an ideal situation will be decreasing government employment as the private sector starts to play a more significant role in the job market.
Third, governments must adopt part-time employment. Part-time employment could be via a lower number of days per week or a few hours per working day. Either way, part-time employment should be accepted as a new normal as much as remote working is. Part-time will allow governments the flexibility in recruiting whomever is needed when needed.
Doing so will lower the final public sector payroll bill along with other associated financial obligations, such as payment of pension contributions.
On a smaller scale, a mix of part-time and remote working will lower daily office expenses for government ministries and entities. On a wider scale, lower spending on public sector payroll will allow governments more leeway in dealing with similar crises in the future, even when their revenues are diminishing.
While the above steps could result in savings for governments, the more important aspect of the post Covid-19 era is what shape the job market will take in the future and how sustainable it is for public and private sectors.
The ultimate goal must be to reduce redundancy in public sector employment and to urge various forms of employment and modes of work, such as remote work and part-time employment, to limit public sector employment.
In parallel, conditions in the job market must encourage higher employment in the private sector, which can only take place in tandem with a diminishing government role in the job market. Reducing government expenditure, through short- and medium-term means, should be steps towards a more essential shift in the job market.
The last thought that I want to leave you with: Can productivity be a key driver behind government employment in the future?