One of the main determinants of the effectiveness of a bureaucratic system is the system of labor remuneration in the state sector. The largest share of bureaucratic costs falls on the salaries of public sector workers. Accordingly, it is particularly important to have a system in the country that would ensure, on the one hand, the existence of adequate and fair wages in the public sector, and, on the other hand, would eliminate irrational spending of budget funds.
Adequate compensation for labor in the public sector is an integral part of anti-corruption policy. At the same time, it ensures competitiveness with the private sector and the creation of appropriate conditions for qualified personnel. The entry into force of the Law of Georgia "On Remuneration in Public Institutions" in 2018 contributed to some regulation of the labor remuneration system in public institutions of Georgia. Specifically, the maximum amount of salary supplement issued during the year was limited to 20% of the annual salary, and the monetary reward (bonus) was limited to 10% of the annual salary. In addition, it was forbidden to give both salary supplements and bonuses (monetary rewards) to state-political and political officials. Under the new law, against the background of restrictions imposed on bonuses and salary supplements and in the process of forming a fair system of labor remuneration, the new system of coefficients for determining the monthly official salary became a challenge. The system determined the remuneration coefficients and their threshold amounts to be given to different categories of employees/officials. According to the hierarchies of the positions, the head of the institution ensures that the category of the coefficient determined by the position hierarchy is assigned to the employed person, which is multiplied by the base official rate and is reflected in the staff list.
Since 2018, studies conducted by the IDFI showed that even under the new law, most of the officials retained in the form of official severance pay the amount of labor compensation that had been paid for years under the conditions of the irregular salary policy. Additionally, the effect of this law did not extend to a number of agencies and positions. For example, employees with special and military ranks of the Ministry of Internal Affairs, employees of the Special Penitentiary Service, employees of regulatory commissions, employees of the National Bank, and others.
In 2018, in accordance with the new law, the basic official salary in the state budget was determined in the amount of 1,000 GEL, which was not changed until 2022. In the 2022 state budget, the base salary increased by 10% and was set at 1,100 GEL. When announcing this change, the Minister of Finance of Georgia stated that salaries in the public sector lagged significantly behind those in the private sector, which posed a threat to the retention of qualified personnel, as an argument for the change. In addition, the Minister explained that the salary increase in the public service would continue in the following years, and by July 1, 2022, the basic principles would be established, according to which the salary increase in the public service would be regulated. On July 18, 2022, the Minister of Finance of Georgia informed the public that the basic principles according to which the salary increase in the public sector would be regulated were determined at a government meeting. Specifically, until 2026, salaries in the public service would increase annually by approximately 10%, and after 2026, in proportion to the increase in salaries in the private sector.
Based on publicly available data, the present study reviews the practices of the Georgian bureaucratic apparatus and related labor costs. In addition, the study evaluates the rationale for the planned salary increases in the public sector and its impact on the burden of bureaucratic costs.
- Considering the announced salary increases in the public sector before 2026, the forecast figure for labor compensation expenses in the 2026 state budget is 2.55 billion GEL, which is about 900 million GEL (55%) higher than the actual figure of 2021.
- As a result of the increase in salaries announced in the public sector, the burden of labor costs in the state budget will increase by approximately 2%.
- In 2021, 301.5 thousand people were employed in the state sector, the highest figure in the last 10 years.
- In terms of freelancers, the share in the public sector reached 36% in 2021, which is the highest figure since 2012.
- In 2018-2021, despite basic official salaries remaining unchanged, the costs of labor compensation from the state budget were increasing annually. For example, in 2021, compared to the previous year, labor costs increased by about 7%.
- In 2021, 359.6 million GEL was spent on contracted employees, which is 63 million GEL higher than the previous year. Such costs have been increasing by an average of 20% annually since 2013.
- According to data from 2021, 163,069 persons were employed at state NNLEs and LEPLs. Among these, 50,561 (31%) were freelance employees.
- In 2021, state LEPLs and NNLEs (excluding public schools) disbursed labor compensation costs of 443.5 million GEL from their own revenue, which is about 10% higher than the figure of 2020.
- Aggregate data on the bureaucratic apparatus of municipal NNLEs and state companies is available only through 2019. During this period, 61,401 employees were employed in municipal NNLEs, and 37,142 employees were employed in state companies.
In the public sector, the salary increases planned from 2022 require significant state resources, which creates the need to increase the burden of bureaucratic expenses on the state budget.
It is worth highlighting the fact that, despite the annual increase in total labor remuneration costs, ensuring a fair and competitive compensation system for civil servants is still a significant problem. IDFI believes that the main determining factor of this is the presence of a non-optimized bureaucratic apparatus, without proper reforms of which it is impossible, on the one hand, to bring bureaucratic costs in line with economic challenges in the country, and on the other hand, to maintain a competitive public service.
The annual increase in public sector wages announced by the government while maintaining the current size of the bureaucratic apparatus raises doubts that this is an attempt to gain the loyalty of the public sector. According to the analysis of the data of the bureaucratic apparatus, the unreasonably high indicators of the number of employees of the state and municipal LEPLs and NNLEs and the growing trend in employment of persons in these agencies can be assessed as especially problematic. The existing practice of employment under a labor contract and the annually increasing costs of their compensation is an additional problem.
IDFI believes that in order to alleviate the budgetary burden expected due to the planned salary increase in the public sector and to ensure a fair salary increase process, it is important to consider the following circumstances:
- The increase of salaries in the public sector should be carried out in a marginal volume that would not lead to an increase in the burden of labor costs in the state budget. Among them, the possibilities of freeing up the funds with maximum optimization of the bureaucratic apparatus should be discussed.
- Salaries in the public sector should be increased while taking into account the needs revealed by a detailed study of the labor market, and not in equal proportion for all employees. In order to ensure the aforementioned, together with the basic salary, the possibilities of matching the coefficients/monthly salaries determined at the level of specific agencies should be considered.
- The government of Georgia (both at the central and local level) should ensure the optimization of the bureaucratic apparatus. Among other measures, special attention should be paid to the unreasonably high numbers of employees of state and municipal LEPLs and NNLEs, the existing practice of contract employment, and others.
- The State Audit Service should engage more actively in the monitoring of the effectiveness of the bureaucratic apparatus of Georgia and the costs incurred for its maintenance, until the bureaucratic system reaches a proper optimization level.
/public/upload/00_studies/Salary Increases in the Public Sector and Bureaucracy.pdf
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The analysis was prepared by the Institute for Development of Freedom of Information (IDFI). It was supported by a grant from Luminate. IDFI is responsible for the content of this document. Views expressed in therein do not reflect the position of Luminate.
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