IMF report advises Libya to reduce public sector wages to encourage private sector growth

International Monetary Fund, Libya Beyond the Revolution: Challenges and Opportunities, 16 April 2012, p. 12:

In the short term, the authorities need to balance recurrent spending pressures against the need for fiscal sustainability and prospects for private-sector development. Wage increases implemented by the previous regime will raise the wage bill from 9 percent of GDP in 2010 to about 19 percent of GDP in 2012. A high level of public-sector wages will reduce the incentive for individuals to seek employment in the private sector and will undermine efforts to advance economic diversification.

If this sounds familiar, it may be because you already heard a similar argument used by the US Republican Party to justify public sector budget cuts:

[…] House Republicans laid out a perverse plan to lower working Americans’ wages, supposedly in a bid to get employers to hire more of them (PDF). One would be hard-pressed to find a better example of the “race to the bottom.” as Tim Fernholz and Jim Tankersley wrote in the National Journal, the GOP report “makes the party’s … case that fiscal consolidation (read: spending cuts) can spur immediate economic growth and reduce unemployment.” The paper calls for cuts that are “large, credible, and politically difficult to reverse once made,” and offers a typical conservative fantasy about shuttering entire federal agencies. But topping the list of what should be on the Republicans’ chopping block is “decreasing the number and compensation of government workers,” which the staffers say will spur job creation because “a smaller government workforce increases the available supply of educated, skilled workers for private firms, thus lowering labor costs” (Joshua Holland, AlterNet, 28 March 2011).

The logic behind this is, of course, incredibly cruel. It’s one thing to suggest that lower public sector wages are necessary for fiscal reasons, but it’s quite another to promote the intentional undermining of a workforce’s bargaining power as means of private sector growth.

Now, it’s not a given that Libya will implement these “reforms” since it has a great deal of oil wealth and is not particularly dependent on the IMF. But it’s rather telling that the IMF is advising this to the post-Gaddafi government.

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