Public Wage Bills Account for 5% of Iran’s GDP

EghtesadOnline: Public wages in Iran account for 5% of the country’s gross domestic product, a newly published report by the International Monetary Fund titled “Public Wage Bills in the Middle East and Central Asia” announced.

News ID: ۷۸۱۴۵۹

22 January 2018

Many countries in the Middle East and Central Asia have large public wage bills, both relative to their own revenues and expenditures, and compared with their global peers. This can be a result of high levels of public employment, unusually high wages, or sometimes both.

Labor markets are distorted in countries where public sector compensation grossly exceeds that in the private sector, the IMF said.

Average public wage bills amount to 10% of GDP in (Persian) Gulf Cooperation Council states and Algeria, compared to 6% for emerging market and developing economies. The ratio is less than 4% in the Caucasus and Central Asia.

Public sector accounts for around 25% of total employment in (P)GCC, 9% for the Caucasus and Central Asia, and 16% for Iran.

Differences in public wage bills across the region are significant. For example, in the (P)GCC, Saudi Arabia’s wage bill of about 13% of GDP is more than double the public wage bills in the UAE and Qatar.

Among non-(P)GCC oil exporters in the Middle East and North Africa, Iraq’s public wage bill also exceeds 12% of GDP and is significantly higher than that of Iran.

Public wage bills in Morocco, Tunisia and the West Bank and Gaza are more than double those in Jordan and Sudan.

The report also suggests high wages in state-supported sectors in the Middle East, offering jobs aplenty to work-hungry citizens, fail to tackle growing unemployment as population levels rise and do not translate into better public services.

Iranian economist Mousa Ghaninejad said the structural absence of an efficient motivational system is to blame for the lower productivity of workforce in the public sector compared with that of private sector.

“That 10% to 20% of public employment in Iran are redundant would be an underestimate,” he said.

“As per the Third Five-Year Development Plan (2001-06), all public organizations were mandated to employ fewer than their retirees. Downsizing the government was going as expected during the years of the Third Five-Year Development Plan. [Former president] Mahmoud Ahmadinejad, who took office in the fiscal March 2005-6, changed the course of public employment, and as such, the government’s payroll increased by 500,000 at the end of his second term.”

Among non-(P)GCC MENA oil exporters, Iran’s public wage bill has been shrinking in real terms since the imposition of UN sanctions in 2006 and a rise in inflation, the IMF report said.

Ghaninejad said that although the government of President Hassan Rouhani ended unrestrained public employments, the Iranian economy is still grappling with the bloated expenses of workforce.

Public wage bill reforms can support countries’ efforts to grow their private sectors and create jobs, which is the more sustainable source of employment for the millions of new graduates entering labor markets.

By enabling higher investment in infrastructure and social protection, and by removing labor market distortions, wage bill reforms can boost the private sector.

A recent report by Majlis Research Center shows the number of civil servants dropped from nearly 4 million in the fiscal 2005-6 to 3.71 million in 2016-17 to constitute 16.7% of the total employees in Iran, suggesting that the public sector has a limited capacity for job creation.

In view of the falling oil prices and poor state of Iran’s budget in recent years, it seems difficult to preserve the purchasing power of civil servants in the years to come, the report said, adding that the labor market is not expected to turn the corner with the help of the government.

Interestingly, the share of women in the public sector employment is 10% more than that of men, as a quarter of jobs currently held by women are jobs with government entities.

Caption: Many countries in the Middle East and Central Asia have large public wage bills, both relative to their own revenues and expenditures and compared with their global peers.