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Public services are labour intensive and as a consequence the public sector wage bill accounts for a significant proportion of government current spending - Leaving Cert Economics - Question c - 2008
Question c
Public services are labour intensive and as a consequence the public sector wage bill accounts for a significant proportion of government current spending. (i) Expl... show full transcript
Worked Solution & Example Answer:Public services are labour intensive and as a consequence the public sector wage bill accounts for a significant proportion of government current spending - Leaving Cert Economics - Question c - 2008
Step 1
Explain why Marginal Revenue Productivity (MRP) might not be a suitable method for setting wages in the Public Sector.
Answer
Marginal Revenue Productivity (MRP) is often not ideal for wage setting in the public sector for several reasons:
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Difficulty in Measuring Output: In many public sector jobs, the output produced is not tangible or easily quantifiable. For instance, many services provided, such as education and healthcare, result in benefits that are hard to measure, complicating the calculation of Marginal Physical Product (MPP).
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Lack of Market Prices: Goods and services produced by the public sector frequently do not enter traditional marketplaces. This makes it challenging to estimate prices or the associated marginal revenue, leading to complications in determining fair wages based on MRP.
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Complex Interrelationships of Inputs: When labor and capital are used together within public sector organizations, it becomes difficult to disentangle their individual contributions to productivity. The integration of technology and staff can obscure how much each contributes to output.
Step 2
Outline an alternative method for determining wage levels in the Public Sector.
Answer
An alternative method for determining wage levels in the public sector could involve using standardized salary scales based on job evaluation methods. This would consider:
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Job Responsibilities: Analyzing the specific duties and responsibilities associated with different positions to create a structured grading system.
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Comparative Analysis: Reviewing wage levels in similar public sector roles regionally or nationally to ensure competitive and fair compensation that reflects the skills and requirements of each job.
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Negotiation with Stakeholders: Engaging with unions and public sector associations to collectively set wage levels that are agreeable and sustainable, recognizing both the financial constraints of government budgets and the need to attract and retain talent.
Step 3
Identify possible ways in which the Minister for Finance could reduce the Public Sector wage bill.
Answer
To effectively reduce the Public Sector wage bill, the Minister for Finance could consider several strategies:
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Hiring Freeze: Implementing a temporary hiring freeze to control costs and manage the wage bill effectively, allowing attrition to naturally reduce the workforce without layoffs.
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Reviewing Benefits and Allowances: Analyzing and potentially reducing non-salary benefits and allowances that contribute to the overall wage bill while ensuring that the core salaries remain competitive.
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Performance-Based Incentives: Shifting towards a performance-based compensation system that rewards efficiency and results, encouraging higher productivity without necessarily increasing overall wage expenditures.