2006-07-26

The public servant pay-scale in China

ESWN translated part of Lian Yue's commentary, about China's planned salary raise for its public servants.
  • "For the sake of national interests and progress, I hope that the public servant wage reform would result in a wage reduction, even if it is only 10 RMB per month. This small sum will inform the public that the public service system is not just a system of special privileges in which wages only go up and never down. It will be worthwhile."
I disagree with Lian Yue. Lian made 2 technical mistakes here.
  1. he failed to show the relationships between "national interests and progress" and his suggestion.
  2. That everybody's wage has only go up but not down, because of economic progress and inflation.
Whether the salary raise is justified is determined by the ability to attract and retain talent, and whether it commensurate with similar jobs in private sector, not by some vague egalitarian moral standards. As Lian pointed out earlier in his blog, "According to recently released statistics released by Xinhua, the average income of Chinese public servants is 15,487 RMB which is slightly lower than the 16,024 RMB of all urban Chinese employees"

In fact, I would argue for more raise for the high level officials. i.e. an income spectrum more closely mirror that of the private sector, i.e. a Gini profile similar to that of the country in total.

Instead of arguing against the raise, I would rather argue for a mechanism of firing incompetent staff, and increased punishment for corruption. Raise will be justified by more accountability. There is less excuse to not perform or be corrupt. With the salary raise, it should also be easier to attract talent to replenish the talent pool.

According to China Daily
  • "A total of 34.7 billion yuan (4.3 billion U.S. dollars) will be spent on salary rises for 120 million people
  • The audit report of 32 central government ministries and national-level public institutions released last September by the National Audit Office showed that some organizations had embezzled public funds to pay special allowances to their employees. For example, a public institution under the General Administration of Civil Aviation had spent more than 48 million yuan (six million U.S. dollars) on special allowances for employees."
There are 2 important issues when one considers pay-scale is suitable.
  1. commensurate with private sector opportunity (to attract talent, and to discourage corruption)
  2. affordability by the state
Here is a simple calculation to benchmark the pay-scale of the leaders of states, trying to answer these 2 issues

Country Salary (US$k) GDP/cap ratio Top/Bot 10% ratio vs TBR GDP (US$b) PPM (%%)
Singapore 1,260.0 26,835 47.0 17.7 2.65 118 10.678
Phillipines 28.0 1,159 24.2 16.5 1.46 98 0.286
Japan 240.0 35,787 6.7 4.5 1.49 4571 0.053
Taiwan(ROC) 175.0 15,120 11.6 9.0 1.29 346 0.506
HK 512.8 25,444 20.2 17.8 1.13 178 2.881
Argentina 180.0 4,802 37.5 39.1 0.96 182 0.989
Thailand 30.0 2,577 11.6 13.4 0.87 169 0.178
US 450.0 42,101 10.7 15.9 0.67 12486 0.036
Russia 25.0 5,369 4.7 7.2 0.65 766 0.033
Malaysia 70.0 5,040 13.9 22.1 0.63 131 0.534
France 178.0 33,734 5.3 9.1 0.58 2106 0.085
UK 171.0 36,599 4.7 13.8 0.34 2201 0.078
Australia 137.0 34,714 3.9 12.5 0.32 708 0.194
Vietnam 1.7 612 2.8 9.4 0.29 51 0.033
Italy 100.8 30,450 3.3 11.6 0.29 1766 0.057
Cambodia 1.2 375 3.2 11.6 0.28 5.4 0.222
China 4.5 1,703 2.6 10.7 0.25 2225 0.002


Source: pay-scale, wiki, and google search, Taiwan's top-bottom 10 percentile ratio estimated by its Gini index of 35.

1) Salary/GDP indicates affordability (PPM=million(th) of GDP). The larger the economy, the bigger the scale and hence more affordable the state (Note however, to determine the pay of the provincial governor and mayor one should use the average size of the economy of these sub-entities)
2) Top-bottom ratio is the ratio of the income of the top 10 percentile vs that of the bottom 10 percentile ("vs TBR" , which is the quotient of the 2 columns to its left). This is compared with the ratio of the Head of State salary vs the average GDP/cap.

As you can see from the table above. China's president got paid the least in such measures. And the country can definitely afford to raise it by a factor of at least 5-10.

Some additional commets and caveats
  • Non-cash perks has not been incorporated. But almost all countries provide perks such as bodyguard, travel and chef, etc. But this should narrow the difference in measure
  • Retirement benefits/perks were not considered, but they are usually proportional to the salary
  • "vs TBR" = 1 means the Head of State makes the average of the top 10% income, or roughly the 5th percentile. Hu Jintao makes 25% of the guy who ranked 5%*1.3bn=65M(th) in China
  • I would suggest the pay-scale for provincial and municipal head follows the similar benchmarking. (For China's rotating appointment across provinces of disparate size and income level, an alternative is to use the average plus a smal regional adjustment, because the regional adjustment has been partly compensated by the perk)
You cannot have a frugal official class who also performs in a capitalistic economy. If you want to reduce the salary of public servants, fine, find a time machine and go back to pre-1976 era. The public servant teams were clean as snow.
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1 comment:

bx said...

I think you are absolutely correct, its especially notable that Singapore is relatively free of corruption, which is largely due to its public servant wage rises during the last few decades.

Believe it or not, I think that most people DO NOT want to be corrupt if they can help it.

Stick and carrot.