How the public sector is fighting income inequality (and why it’s still not enough)

Posted on February 28, 2024 in Equality Delivery System

Source: — Authors:

CCPA – Reports
February 28, 2024.   David Macdonald

Whether it’s gender, parental status, or immigration status, the public sector is better at narrowing pay gaps than the private sector.

Executive summary

This analysis examines hourly pay in 2023, with a view to understanding differences between public and private pay practices. The public sector is broadly defined, including public administration at all three levels of government, protective services, and publicly funded health and education.

The analysis is using the Labour Force Survey and adjusts for 15 common factors to ensure we are comparing like-to-like workers: gender, public/private sector, age, marital status, education, tenure, job permanence, full/part time, workplace size, industry, occupation, immigration, province, CMA, unionization using two standard economic techniques ordinary least squares and unconditional quantile regression.

Before delving into public vs. private pay practices, it is clear that discrimination is alive and well in Canada. Women were paid 8.5 per cent less than men in 2023, even after adjusting for the 15 factors. Wage discrimination is also in play for recent immigrants, who are paid eight per cent less than Canadian-born workers, after adjusting for the factors above. The adjusted average shows little difference between public and private sector wages but it obscures important underlying differences.

Public and private sectors have substantially different discriminatory pay gaps hiding below the surface.

In the private sector, men make 10 per cent more than women. In the public sector, the gender pay gap is only five per cent. Put another way, women in public sector make four per cent more than women in private sector. This reduction in the gender pay gap is offset by men’s wages in the public sector—they make slightly less in the public sector compared to the private sector. Therefore, the gender pay gap is smaller in public sector due to the fact that women’s wages are raised and men’s are slightly lowered.

An important part of lower pay for women is the presence of children. Women often suffer a motherhood penalty: their pay drops when they have children, whereas men experience a fatherhood premium. There is some evidence of a motherhood penalty in the private sector, but the fatherhood premium is a massive 15 per cent in the private sector and smaller in the public sector, at 7 per cent.

The public sector’s impact on gender pay equity is very concentrated among middle- to middle-low income earners who were making around $20 an hour in 2023. At that income level, women in the public sector make roughly the same as men in both the public and private sectors, achieve pay equity. It’s a rare phenomenon.

In the upper half of the income spectrum, women and men in the public sector make less than their private sector counterparts. Also, the gender pay gap widens in both sectors at higher-income levels.

The public sector also closes the discriminatory pay gap for new Canadians. In the private sector, landed immigrants are paid eight per cent less, even after adjusting for our 15 factors. By contrast, the public sector pays new Canadians three per cent less than private sector Canadian-born workers in 2023.

An examination of occupations reveals similar patterns, where the public sector is lifting bottom-end wages while keeping high-end wages in check. Senior managers are paid a whopping 29 per cent less in the public sector. Health professionals, like doctors, dentists and optometrists, are also paid less in the public sector, likely due to public Medicare constraining their wages.

On flip side, educators, including those in primary, secondary, university and colleges, are paid more in the public sector. Key areas of education are heavily dominated by women, who seem to be getting a fairer shake in public schools, compared to private schools. Social workers/councillors are also better paid in the public sector.

When you compare like-to-like factors, there is little difference between average public sector and private sector hourly pay, however, important discriminatory pay gaps couldn’t be more different behind these broad averages. The public sector raises pay for those experiencing discrimination: women, mothers, and new Canadians while it lowers pay for men, fathers, executives and medical professionals. Public sector pay does this mostly by providing pay equity for women making around $20 an hour while reducing pay for those making over $100,000 a year. The private sector does the opposite, increasing discrimination, overpaying executives and boosting high-end wages even higher. These are two very different ways to get to the same average place, one with more equality through wage compression and one with less equality through pay extremes.

The public sector hasn’t erased discrimination and ensured gender equality, but it performs better on this measure than the private sector. While there is still work to be done to eliminate the gender pay gap, the public sector is further along than the private sector, where the pay gap is twice as big as the public sector.

It’s time for the private sector to pay more like the public sector—that’s the key to reducing income inequality in the workplace.


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