Human Resource Management Issues in ECA Countries 1

Human Resource Management Issues in ECA Countries 1 Summary of Findings and Their Implications... 2 Affordability of HRM practices... 4 Employment... 4 Public Enterprise Employment... 5 General Government Employment... 7 Education Employment... 9 Health and Social Protection Employment... 11 Wages & Salaries... 14 Performance-enabling HRM practices... 20 Pay structures... 20 Competitiveness... 23 Elements of remuneration... 26 Impacts of remuneration practices... 29 Other HRM Practices... 31 Politicization... 31 Poor policy and performance accountability... 32 Annex 1: Public Administration Data Sources... 35 Annex 2: Bibliography... 40 In this chapter we examine four human resource management (HRM) issues in the ten ECA Focus Countries, each of which contributes to (i) the affordability of each country s public administration and (ii) the extent to which particular HRM practices are performance-enabling; i.e., contribute to the capacity of entities within a country s public administration to effectively and efficiently carry out their missions. The four HRM issues examined are: (i) employment; (ii) the wage bill; (iii) pay structures; and (iv) other HR management practices. In examining each of these issues, we present both countryspecific and country-group comparisons between the ECA Focus Countries 2 and the Non- ECA Focus Countries 3 We often include other country-group comparisons with subregional groups of ECA countries, with EU15 countries, and with non-eu OECD countries particularly when limited numbers of observations within the set of Non-ECA Focus Countries limit the validity and usefulness of the comparisons that can be made with the ECA Focus Countries. Many of the comparisons for the first three issues are based on a comprehensive pay and employment data base, compiled especially for this research, which builds on some of the data sets compiled for this entire volume. 4 Most of the comparisons for the final issue (other HRM practices), as well as some of the comparisons for each of the first three issues, are based either on a review of countryspecific research undertaken by others or on unique data sources for particular countries (e.g., public/private sector salary surveys in Romania and Russia, among the ECA Focus 1 Prepared by Gary J. Reid (Lead Public Sector Management Specialist) and Jana Orac (Consultant). 2 The ten ECA Focus Countries include: Albania, Armenia, Croatia, Georgia, Kyrgyz Republic, Poland, Romania, Slovak Republic, Turkey, Ukraine. Comparisons omit particular countries, when data is not available for those countries. 3 The seven Non-ECA Focus Countries include: Chile, Ireland, Korea, Spain, Thailand, Uganda, Vietnam. Again, comparisons omit particular countries, when data is not available for those countries. 4 See Annex 1.

-2- Countries, and similar surveys in a few other ECA countries; namely, Bulgaria, Serbia, and Moldova). 5 The analysis presented in this chapter looks at both static and dynamic phenomena. Insofar as data permits, we examine variables over the 1995-2004 period. Sometimes, data limitations force us to look at shorter time periods within that decade. We examine trends, variances as well averages over this period (or sub-periods), in order to highlight both relatively enduring differences between the ECA Focus Countries and the other comparator sets of countries (usually the Non-ECA Focus Countries), as well as how both individual countries and country-groups have adjusted along key dimensions of each of these issues over that decade (or sub-period). Summary of Findings and Their Implications ECA Focus Countries display considerable variation in their pay and employment practices, much as do the Non-ECA Focus Countries, as well as their OECD and EU colleagues. Moreover, average levels of public employment, pay and the fiscal burden of wage bills differ only modestly from Non-ECA Focus/OECD/EU averages. On the other hand, excessive politicization and underdeveloped webs of accountability mechanisms, both formal and informal, are common features of most ECA countries. These institutional problems undermine efforts to attract, retain and motivate the human resources required for public sectors in ECA countries to meet the challenges posed by a competitive global economy. Moreover, in those ECA countries that have excessive levels of public employment or bear particularly heavy fiscal burdens from their wage bills, these underlying institutional weaknesses typically are important causes of those imbalances. Our findings can be succinctly summarized as follows: 1. ECA Focus countries have, over the 1995-2004 period, achieved reasonable overall levels of employment, and overall wage bills that should be affordable, although further reductions in public enterprise employment are probably still warranted. Moreover, a. ECA Focus countries have achieved these fiscally sound overall levels of employment and wage bills through: i. Dramatic, and often, sustained privatization of public enterprises; and ii. In some cases, protracted efforts to modestly but consistently reduce general government employment each year throughout an extended period of time. No country has achieved significant, sustained general government employment reductions through major, one-off retrenchment exercises. 2. ECA Focus countries have salary structures that make it difficult for them to attract, retain and motivate staff with the skills they need, in order to enable their public entities to effectively and efficiently meet their organizational objectives. Average salary levels are only modestly lower, relative to per capita GDP, than is the case in reasonable comparator countries. But the structures themselves 5 Again, see Annex 1.

-3- a. fail to ensure consistency in the competitiveness of remuneration across positions, b. tend to concentrate too large a fraction of remuneration in elements of salary that are not closely linked to the human capital requirements of the position, and c. often exhibit considerable variability in total remuneration for similar positions because of those non-human capital elements of salary and because assignments of many of those other elements of salary to individual staff are discretionary and not subject to adequate accountability checks. Only a few ECA Focus Countries have made any inroads on these salary structure challenges; and their keys to success have been: (a) targeting the initial rounds of such salary restructurings at a small enough cadre of staff that it is fiscally feasible; and (b) basing those salary restructurings on a careful empirical analysis of the problems created by the existing salary structure. 3. ECA Focus countries are characterized by other HRM practices that further undermine their capacity to cost-effectively attract, retain and motivate staff with the skills they need in order to enable their public entities to effectively and efficiently meet their organizational objectives. Few have made significant inroads on these other HRM practices challenges; but among those who have, their keys to success have been both reform design factors, as well as reform leadership factors. a. Key reform design factors have included: i. targeting such reforms at a strategic yet small enough cadre of staff to be able to address four key feasibility constraints: 1. political feasibility; 2. organizational culture feasibility; 3. critical mass feasibility; and 4. absorptive capacity feasibility; while ii. spearheading such reforms under a banner capable of generating domestic demand for those reforms (e.g., the requirements of EU Accession, or an anti-corruption campaign); and iii. monitoring and publicizing evidence on the immediate impacts of those reforms, so as to both keep reformers focused on the underlying objectives of the reform effort, as well as facilitate the generation of domestic demand for an effective reform effort. b. Key reform leadership factors., not surprisingly, have included: i. political leadership, and ii. technical level leadership. In short, overall employment and wage bill control are largely achieved objectives in almost all ECA Focus Countries. At the same time, very few of these countries has made significant progress on creating either more performance-enabling salary structures or

-4- more performance-enabling HRM practices more generally. Lessons from the experiences of the ECA Focus Countries in addressing these HRM issues include: 1. When employment and/or the wage bill are excessive, the most promising avenues for addressing that problem are: a. Privatization of public enterprises: This applies, of course, only when significant public enterprise employment exists; but when that is the case, this is the most reliable means of achieving large and sustainable employment reductions within a relatively short period of time. b. Reforms to the budget process and establishment control systems and procedures, designed to create continuous pressure, on an annual basis, to slowly, but surely, ratchet down general government employment. In short, slow, but steady, systemic reforms aimed at improving establishment and wage bill control effectiveness have proven more effective at sustainably reducing employment and the wage bill than have major, one-off retrenchment efforts. 2. Salary structures should be looked at carefully, and the Bank and the client country should engage in extended analysis and discussion of options for reforming those structures so that they: a. ensure more consistency in the competitiveness of total remuneration across types of positions (subject to the constraint of wage bill affordability), and b. ensure that a larger fraction of total remuneration is determined by the human capital requirements of a given position (skills; knowledge; levels, types and scope of responsibilities), while the fraction of total remuneration determined by other factors (e.g., entitlements based on nonhuman capital characteristics of the staff member) is reduced as much as is politically and socially feasible. 3. Other HRM practices should be looked at carefully, and the Bank and the client country should engage in extended analysis and discussion of options for reforming those practices so that they: a. Ensure meritocratic, depoliticized personnel management practices within a strategic cadre of civil servants a small enough cadre that the needed reforms can succeed, but strategically enough selected that the cadre can actually impact the performance of public entities; b. better link financial incentives for personnel performance to organizational objectives, and c. build stronger non-financial reasons for staff to identify with and energetically pursue organizational objectives. Affordability of HRM practices Employment

-5- Public Enterprise Employment 6 Public enterprise employment patterns over the 1995-2004 period differ strikingly from the patterns for general government or subsets of general government employment, such as health and education (see below). Most striking within the ECA Focus countries 7, as well as within all sub-regional groupings of ECA countries (Balkans 8, CIS 9, EU8 10 ) are the following patterns (see Figure 1): All groupings of ECA countries achieved dramatic reductions in public enterprise employment in single years, while no non-eca comparator country group achieved such dramatic single-year reductions. All groupings of ECA countries achieved significantly greater overall reductions over the full period than were evident within general government employment, while no non-eca comparator country group achieved such fullperiod reductions. The EU15 11 and non-eu OECD 12 countries, as well as the one Non-ECA Focus country for which complete data were available (Spain), exhibited no such patterns; rather, public enterprise employment within those developed countries remained low and stable throughout this period. 6 Data are drawn from the International Labor Organisation (ILO) online database LABORSTA, downloaded Sept. 2006, and capture actual employment (as opposed to authorized or budgeted positions). This data source provided the most consistent data on public employment over the longest time series for the largest number of countries included in this study. Nevertheless, there are still numerous missing data points. The figures reported herein the 1995-2004 period are estimates of employment changes over that period for countries in which there were sufficient annual observations to reasonably project the 1995 and 2004 data points. For the 1990-1995 period, only countries for which data for both years was available are reported here. See Annex 1 for more information on data sources. 7 Albania, Armenia, Croatia, Kyrgyz, Poland, Slovakia, Turkey. 8 Albania, Bulgaria, Croatia, Turkey. 9 Armenia, Azerbaijan, Belarus, Moldova. 10 Estonia, Lithuania, Poland, Slovakia, Slovenia. 11 Denmark, Germany, Spain, U.K. 12 Canada, Norway.

-6-16.0% 14.0% 12.0% Percent of Population 10.0% 8.0% 6.0% 4.0% ECA Focus EU8 EU-15 Spain Balkans CIS Non-EU OECD 2.0% 0.0% 1996 1997 1998 1999 2000 2001 2002 2003 Figure 1: Public Enterprise Employment per Capita: Country Groups ECA Focus countries, as a group, steadily reduced public enterprise employment throughout the 1996-2003 period, by almost half, from 9.1% to 4.8% of population. Similar patterns of reduction were evident in the Balkan, CIS and EU8 country groups; most dramatically within the CIS countries, which reduced their average level of public enterprise employment from 14.8% to 8.8% over that period. EU15 countries, non-eu OECD countries and the one Non-ECA focus country for which full data series were available (Spain), all kept their public enterprise levels of employment stable, averaging 1.4%, 2.1% and 0.6%, respectively over this period. Within the ECA Focus countries, only Turkey failed to achieve dramatic reductions in public enterprise employment (see Figure 2), and that surely reflects the fact that public enterprise employment was only 0.8% of population, the lowest among ECA Focus Countries, at the beginning of the period, which was only about half the EU15 average of 1.4% over this period. The next most modest public enterprise employment reductions among ECA Focus Countries were achieved in Albania, which had only 3.7% of its population employed in public enterprises in 1995, but still managed to reduce this by more than 40%, to 2.1% by 2003. The speed of public enterprise employment reductions tended to be greater earlier in this decade, and more attenuated by the end of the period; suggesting that the typical approach was to privatize the large enterprises early, while leaving the smaller ones until later in the downsizing process. Dramatic early reductions were particularly evident in Armenia and Ukraine, which, in 1995, employed 21.9% and 20.7% of their populations in public enterprises, respectively at that time; but reduced those incidences to 10.1% and 13.7%, respectively by 2000.

-7-25.0% 20.0% % of Population 15.0% 10.0% Albania Armenia Croatia Georgia Kyrgyz Republic Poland Slovak Republic Turkey Ukraine 5.0% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 2: Public Enterprise Employment per Capita: ECA Focus Countries General Government Employment 13 Based on the most comprehensive and consistently defined data that could be compiled, the following patterns emerge. When samples are restricted to countries for which a complete time series is available, we are able to make comparisons of subsets of countries from each of the following groups over the 1997-2003 period: ECA Focus 14, Non-ECA Focus (Spain only), EU8 15, Balkans 16, CIS 17, EU15 18 and non-eu OECD 19 countries. Within each of these samples, the basic pattern is generally remarkable stability in the levels of general government employment (exclusive of public enterprise employment). Only the two Balkan countries included in these samples (Albania and Bulgaria) and two of the ECA Focus countries (Albania and Poland) showed significant reductions in general government employment over the 1997-2003 period. Importantly, the reductions achieved in those three countries were achieved through persistent, modest employment reductions each year, rather than through major reductions concentrated in a 1-2 year period. 13 See footnote 6. 14 Albania, Armenia, Poland, Slovakia. 15 Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia. 16 Albania, Bulgaria. 17 Armenia, Azerbaijan, Belarus, Moldova although the Armenia and Moldova data look suspiciously low. 18 Denmark, Finland, Germany, Spain, Sweden, U.K. 19 Canada, New Zealand, Norway.

-8- ECA Focus countries exhibited significantly lower levels of general government employment than either the Non-ECA Focus countries or any of the sub-regional groupings of ECA countries (see Figure 3). This difference was particularly pronounced with respect to the EU15 and the non-eu OECD country samples, and to a lesser extent, the EU8 sample. The latter three groups averaged 10.0%, 9.8% and 7.5% over this period, respectively, while the ECA Focus countries for which the full time-series data was available averaged only 3.5% over that same period. 12.0% 10.0% 8.0% % of Population 6.0% 4.0% ECA Focus Spain EU8 Balkans CIS EU-15 Non-EU OECD 2.0% 0.0% 1997 1998 1999 2000 2001 2002 2003 Figure 3: General Government Employment per Capita: Country Groups In virtually all ECA Focus countries that achieved significant general government employment reductions over this period, those reductions were accomplished through continuous modest annual reductions, rather than through dramatic, one-off retrenchment exercises (see Figure 4). This is clearest in the cases of Poland and Albania, but also apparent in the Kyrgyz Republic over the 1995-1999 period (data not available beyond 1999). Poland achieved continuous employment reductions throughout the 1995-2003 period, dropping from 6.3% of population to 4.2 %. Albania was every bit as relentless in reducing its general government employment, albeit a bit less dramatically, from a high of 5.1% in 1995 to a low of 3.8% by 2003. Croatia, for which the employment time series is truncated, is the sole possible exception. Its general government employment fluctuated dramatically from year to year over the 2000-2004 period, beginning at 6.9% of population, dropping in 2001 to 6.0%, then bouncing back and forth between 6.0% and 6.3% for the balance of the period. Two of the four countries for which continuous time-series data on general government employment were available for the 1997-2003 period showed no obvious trends or swings in their general government employment Armenia and Slovakia although Slovakia did rise modestly

-9- over that period, from 4.0% to 4.4%. One of the remaining ECA Focus countries, Ukraine, saw rising general government employment, albeit from a very low base from 1.1% of population in 1995 to 1.5% by 2003, after which it fell back to 1.3% in 2004. The other remaining ECA Focus country reported employment data for only three years (Georgia, 1997-99), so it is not possible to determine its pattern over the 1995-2004 period. 8.0% 7.0% 6.0% % of Population 5.0% 4.0% 3.0% Albania Armenia Poland Slovakia Croatia Georgia Kyrgyz Ukraine 2.0% 1.0% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 4: General Government Employment per Capita: ECA Focus Countries In short, the ECA Focus countries have displayed both lower levels of general government employment over the 1997-2003 period than any of the comparator groups, as well as more significant general government employment reductions. Importantly, virtually all the ECA Focus countries, as well as the one other Balkan country (Bulgaria), who achieved employment reductions did so through consistent, incremental, year-byyear reductions, rather than through big-bang retrenchment exercises. Education Employment 20 When education employment is separated out from general government employment, a similar pattern emerges: Education employment is modest and impressively stable throughout the study period both across and within all comparator groups (see Figure 5). Modest education employment: ECA Focus countries maintained significantly lower levels of education employment than either the EU8 or the non-eu OECD countries (which averaged 3.1% and 2.9%, respectively, over the 1997-2003 20 See footnote 6.

-10- period, compared to an ECA Focus countries average of 1.9%); while the one Non-ECA Focus country for which 1997-2003 data were available, Spain, maintained lower education employment than other EU15, let alone EU8 countries (averaging 1.5% over this period, albeit with a modest upward trend). Stable education employment: The ECA Focus countries 21 and non-eu OECD 22 samples showed no obvious trends; rather, they were remarkably stable throughout this period, averaging 1.9% and 2.9% of population, respectively over the 1997-2003 period. There was a modest upward trend in the EU8 group 23 (rising from 3.1% to 3.3% over the 1997-2003 period) and by the one non-eca Focus country for which such data was available for the full 1997-2003 period (Spain rising from 1.4% to 1.7% over that same period). There was an equally modest downward trend in education employment within the subset of Balkan countries 24 for which the full time-series data was available, falling from 2.1% to 1.9%. 3.5% 3.0% 2.5% % of Population 2.0% 1.5% EU8 Balkans ECA Focus Non-EU OECD Spain 1.0% 0.5% 0.0% 1997 1998 1999 2000 2001 2002 2003 Figure 5: Education Employment per Capita: Country Groups Most of the ECA Focus countries maintained quite stable levels of education employment during the 1995-2004 period. The exceptions tended to be the countries whose education employment levels were at the extremes of the ECA Focus countries distribution at the beginning of the period (see Figure 6). The Kyrgyz Republic reduced 21 Albania, Poland, Romania. 22 Australia, Canada, Norway, U.S. 23 Estonia, Hungary, Lithuania, Poland, Slovenia. 24 Albania, Bulgaria, Romania.

-11- its education employment from 3.2% of population to 2.8% between 1995-1999 25 ; while Georgia, which employed 2.8% of its population in the education sector in 1999 (the beginning of its available data series), reduced this to 2.3% in 2000, only to let it jump back up by 2003-04 to 2.8%. At the other end of the distribution, Croatia employed 1.6% of its population in education in 1996, but increased this to 2.0% by 2004. 3.5% 3.0% 2.5% % of Population 2.0% 1.5% Albania Poland Romania Croatia Georgia Kyrgyz 1.0% 0.5% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 6: Education Employment per Capita: ECA Focus Countries Health and Social Protection Employment 26 Health and social protection employment is similarly modest and stable throughout the study period both across and within all comparator groups (see Figure 7). Modest health and social protection employment: Both ECA Focus countries and Non-ECA Focus countries employ significantly fewer health care and social protection staff than EU and OECD countries. EU15 countries 27 employed, on average over this period, 2.9% of population in health care and social protection, trending modestly upward from 2.9% to 3.1% over this period. Non-EU OECD countries 28 employed 3.3% of their population in health care, on average over this period. ECA Focus and Non-ECA Focus countries, on the other hand, averaged 1.4% and 1.3%, respectively over that same period. 25 Unfortunately, data on education employment in the Kyrgyz was not available beyond 1999. 26 See footnote 6. 27 Finland, Spain, U.K. 28 Australia, Canada, Norway, U.S.

-12- Stable health and social protection employment: Health and social protection employment has also proven remarkably stable across countries and regions, with some country-specific exceptions. ECA Focus countries 29 trended slightly downward over the 1997-2003 period, from 1.6% to 1.2% of population; while the only Non-ECA Focus country for which data over the full 1997-2003 period was available (Spain) trended modestly upward, from 1.2% to 1.4%. 4.0% 3.5% 3.0% % of Population 2.5% 2.0% 1.5% ECA Focus Non-ECA Focus Non-EU OECD EU-15 EU8 1.0% 0.5% 0.0% 1997 1998 1999 2000 2001 2002 2003 Figure 7: Health and Social Protection Employment per Capita: Country Groups As with education, health and social protection sector employment was quite stable in most ECA Focus countries, excepting Poland and Georgia (see Figure 8). Poland and Georgia underwent fairly steady reductions in their health and social protection sector public employment over the 1995-2004 period; Poland dropping from 2.5% of population throughout the 1995-98 period to just 1.5% by 2003; Georgia dropping from 1.6% in 1998 to 0.9% by 2003, while rising modestly to 1.0% in 2004. Other ECA Focus countries for which more than four years of data were available maintained essentially stable health and social protection employment over this period. 29 Albania, Poland, Romania.

-13-3.0% 2.5% % of Population 2.0% 1.5% 1.0% Albania Poland Romania Armenia Croatia Georgia Kyrgyz 0.5% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 8: Health and Social Protection Employment per Capita: ECA Focus Countries In sum, public employment levels and changes over the 1995-2004 period exhibited the following: 1. Employment Levels a. While ECA Focus countries began this period with dramatically higher public enterprise employment levels than comparator countries, including the Non-ECA Focus Countries, they achieved significant reductions in public enterprise employment over this decade. Still, by 2004, ECA Focus Countries still employed approximately four times as many workers in public enterprises, relative to population, as did EU15 countries 4.8% of population vs. 1.2% (see Figure 1). Thus, further reductions would appear to be in order. b. ECA Focus countries exhibited significantly lower levels of general government employment than either the Non-ECA Focus countries or any of the sub-regional groupings of ECA countries. c. Education employment is modest and impressively stable throughout the study period both across and within all comparator groups. d. Most of the ECA Focus countries maintained quite stable levels of education employment during the 1995-2004 period. The exceptions tended to be the countries whose education employment levels were at the extremes of the ECA Focus countries distribution at the beginning of the period.

-14- e. Health and social protection employment is similarly modest and stable throughout the study period both across and within all comparator groups. f. As with education, health and social protection employment was quite stable in most ECA Focus countries, excepting Poland and Georgia. 2. Employment Adjustments a. Reductions in enterprise employment were the most important contributor to employment reductions in ECA Focus countries, while no significant enterprise employment reductions were evident in Non-ECA Comparator Countries. i. All groupings of ECA countries achieved dramatic reductions in public enterprise employment in single years, while no non-eca comparator country group achieved such dramatic single-year reductions. ii. All groupings of ECA countries achieved significantly greater overall reductions in enterprise employment over the full period than were evident within general government employment, while no non-eca comparator country group achieved such full-period reductions. iii. ECA Focus countries, as a group, steadily reduced public enterprise employment throughout the 1996-2003 period, by almost half, from 9.1% to 4.8% of population. As noted above, this is still four times the average level of public enterprise employment per capita as in EU15 countries. iv. Within the ECA Focus countries, only Turkey failed to achieve dramatic reductions in public enterprise employment; presumably because its public enterprise employment was already quite low (0.8% of population), and below those of comparator countries, at the beginning of this period. b. General government reductions, when they were achieved, were more modest and more gradual than enterprise employment reductions in ECA Focus Countries, while no significant general government employment reductions were evident in Non-ECA Comparator Countries. In virtually all ECA Focus countries that achieved significant general government employment reductions over this period, those reductions were accomplished through continuous modest annual reductions, rather than through dramatic, one-off retrenchment exercises. Wages & Salaries 30 Wage bill spending does not appear to be out of line as an aggregate among the ECA Focus Countries (see Figure 9). Non-enterprise wages and salaries as a percentage of 30 ECA Focus Countries included in the group wage bill comparisons are the full set less Ukraine and Turkey. Non-ECA Focus Countries included in the group wage bill comparisons are Korea, Ireland, Spain and Thailand.

-15- GDP held roughly constant over the 1995-2004 decade among the ECA Focus countries, at around 6.3%. This contrasts with the Non-ECA Focus countries, whose average fell from 8.6% in 1995 to 6.1% by 1999, after which it remained roughly constant through 2005, holding at 6.2% by 2005. EU8 countries, on the other hand, allowed their public sector wage bills to rise continuously over this period, from 7.1% to 8.0%; while Balkan countries also experienced rising wages and salaries as a percentage of GDP, from 8.9% to 9.4%, despite a dip to 8.0% in 1997-98. 10.0 9.0 8.0 7.0 % of GDP 6.0 5.0 4.0 ECA Focus Non-ECA Focus EU-8 Balkans CIS 3.0 2.0 1.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 9: General Government Wage Bill per GDP: Country Groups High-side outliers among the ECA Focus countries were Croatia and Turkey, while lowside outliers included Armenia and Georgia (see Figure 10). Croatia experienced dramatic fluctuations in its wage bill, beginning the decade at 10.4% of GDP, rising to 12.9% by 2000, and then falling to between 10.6% and 11.1% between 2002-2004. Armenia, on the other hand, managed to continuously reduce an already quite modest wage bill, from a high of 3.7% in 1996 to an end-of-period level of 1.7% of GDP. Georgia, which began the decade with the lowest wage bill among the ECA Focus countries, at 1.8% in 1995, saw its wage bill rise continuously to a high of 3.9% by 1999, after which it more or less stabilized, hovering between 3.2% and 3.6% between 2000 and 2004.

-16-14.0 12.0 % of GDP 10.0 8.0 6.0 4.0 Albania, %GDP Armenia %GDP Croatia %GDP Georgia %GDP Kyrgyz %GDP Poland %GDP Romania %GDP Slovakia %GDP Turkey %GDP Ukraine %GDP 2.0 0.0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 10: General Government Wage Bill per Capita: ECA Focus Countries The most dramatic reductions in the non-enterprise wage bill were accomplished by Albania, which brought its wage bill down from 10.3% in 1992 to a low of 6.3% by 2000, after which salary improvements granted to civil servants and health care workers led to an upward tick in 2001, to 7.0%, followed by a modest but steady decline thereafter, ending at 6.4% by 2004. Significant wage bill reductions were also accomplished by Romania, which brought its wage bill down from 7.1% of GDP in 1992 to 4.8% by 1999, and then allowed it to fluctuate between 4.8% and 5.5% for the rest of the period, ending at 4.9% by 2004. The most volatile countries included the Kyrgyz Republic, Croatia and Slovakia. Kyrgyz saw its wage bill jump from 5.2% of GDP in 1993 to 8.1% the next year, then brought it down to a low of 4.4% in 2000, after which it rose continuously for the rest of the period, reaching 6.0% of GDP by 2004. As noted above, Croatia experienced significant fluctuations in its wage bill over this period, between a low of 10.4% in 1994, peaking at 12.9% in 2000, and ending at 10.8% by 2004. Slovakia reached a low of 3.9% by 1994-95, but then allowed its wage bill to jump to 6.6% of GDP in 1996, and then managed to impose a slow but steady decline for the rest of the period, reaching 5.9% by 2004. Crowding out of non-wage current expenditures is not a serious problem among ECA Focus Countries (see Figure 11). Non-enterprise wages and salaries as a percentage of total current expenditures displayed a similar pattern of: (i) lower levels than the Non- ECA Focus countries, averaging 19.8% vs. 32.8% among the five Non-ECA Focus countries for which data was available for the full 1997-2004 period; (ii) relative consistency across the period for ECA Focus countries as a group, which contrasted with (iii) a significant decline over the 1997-2003 period among Non-ECA Focus countries, dropping from 37.2% to 31.5% by 2003; but (iv) fairly dramatic fluctuations for particular ECA Focus countries Albania, Kyrgyz, Armenia, Slovakia, Georgia and

-17- Romania,, including (iv) upward trends (albeit with considerable volatility) apparent in Slovakia and Georgia, and (v) a downward trend (again, with considerable volatility) in Romania (see Figure 12). 40.0% 35.0% 30.0% % of Current Expenditures 25.0% 20.0% 15.0% ECA Focus Non-ECA Focus EU-8 Balkans CIS 10.0% 5.0% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 11: Wage Bill as % of Current Expenditures: Country Groups The upward trends exhibited by Slovakia and Georgia are simply bringing them closer to the middle of the pack among the various groupings of ECA countries, since both started the period at the bottom of the distribution of wage bill spending, both as a % of GDP, as well as a % of current expenditures. In Georgia s case, increased wage bill spending increased both as a % of current expenditures, as well as a % of GDP. In Armenia s case, the wage bill increase showed up only in an increase in the share of current expenditures devoted to wages and salaries; while its already low wage bill spending as a % of GDP actually declined over this period, from 2.6% in 1995 to 1.7% in 2004, having dropped as low as 1.3% in 2003.

-18-35.0% 30.0% 25.0% 20.0% 15.0% Albania Romania Kyrgyz Slovakia Croatia Poland Georgia Armenia Ukraine 10.0% 5.0% 0.0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 12: Wage Bill as % of Current Expenditures: ECA Focus Countries In short, wage bill spending does not appear to be seriously crowding out other types of spending in the ECA Focus countries when compared to the Non-ECA Focus countries. Moreover, wage bill spending as a share of current expenditures by ECA Focus countries, as a group, was quite similar to the various sub-regional groupings of ECA countries, all of them, except the Balkans, hovering around 18%-20%, while the Balkans averaged just under 24% over the 1995-2004 period. The flip-side of these comparisons is spending on other goods and services as a percentage of current expenditures. ECA Focus countries averaged 28.4% over the 1995-2004 period, while the Non-ECA Focus countries averaged only 23.2% over the 1997-2003 period. 31 The Balkans and EU8 countries tended to have other goods and services spending as a percentage of current expenditures closer to the Non-ECA Focus countries (both groups averaging 22.4%) while the CIS countries displayed, on average, higher levels of non-wage current expenditures (averaging nearly 40%) (see Figure 13). Again, this evidence suggests that crowding out of other types of current expenditures by ECA Focus countries, and particularly by CIS countries, is not a problem, if the Non-ECA Focus countries are taken as the standard. 32 31 The shorter time period for the Non-ECA Focus countries reflected in these figures was chosen simply to get as large a sampling of those countries as possible with data for all years covered. Even so, only four of the seven Non-ECA Focus countries (Korea, Ireland, Spain and Thailand) had sufficient data to be included in these calculations. 32 At the same time, there is, as was the case with wages and salaries, considerably volatility over the 1995-2004 period for individual ECA Focus countries. This volatility was greatest in Armenia and Georgia, with Armenia trending up, and Georgia trending down (neither consistently).

-19-50.0% 45.0% 40.0% 35.0% % of Current Expenditures 30.0% 25.0% 20.0% ECA Focus Non-ECA Focus EU-8 Balkans CIS 15.0% 10.0% 5.0% 0.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 13: Other Goods & Services Expenditures as % of Current Expenditures: Country Groups The very high CIS spending on non-wage current expenditures, coupled with (a) their relatively low levels of wage bill spending as a % of GDP, particularly in Georgia and Armenia, and (b) their low levels of general government employment (again, particularly in Georgia and Armenia) suggest that some of these countries may either be understaffed or seriously compromising their ability to attract and retain qualified staff due to a failure to offer attractive enough salaries (see Figure 14). Armenia s significant reduction in wage bill spending as a % of GDP (a 35% decrease over the 1995-2004 period), coupled with essentially stable general government employment (it fell from 0.9% to 0.8% of population), suggests that Armenia may have significantly reduced its capacity to attract and retain qualified staff over this period, since average remuneration would appear to have dropped by about one-third. Whether Armenia employs adequate numbers of staff or too few is not so obvious. Georgia s wage bill spending per GDP, on the other hand, rose by 78% over the 1995-2004 period (from 1.8% of GDP to 3.2%), but the data does not allow us to identify its employment changes over that same period; 33 so, it isn t possible to conjecture sensibly about whether they have been able to improve public sector remuneration or not. 33 Employment data is available for Georgia for only three years during this period, 1997-1999, during which time Georgia s general government employment remained reasonably stable and quite modest, at around 0.7% of population.

-20-70.0% 60.0% 50.0% 40.0% 30.0% Albania Romania Kyrgyz Slovakia Croatia Poland Georgia Armenia Ukraine 20.0% 10.0% 0.0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Figure 14: Other Goods & Services Expenditures as % of Current Expenditures: ECA Focus Countries In sum, wage bill spending and changes in it over the 1995-2004 period exhibited the following: 1. Wage bill spending does not appear to be out of line as an aggregate among the ECA Focus Countries. 2. Crowding out of non-wage current expenditures is not a serious problem among ECA Focus Countries. 3. The very high CIS spending on non-wage current expenditures, coupled with (a) their relatively low levels of wage bill spending as a % of GDP, particularly in Georgia and Armenia, and (b) their low levels of general government employment (again, particularly in Georgia and Armenia) suggest that some of these countries may either be understaffed or seriously compromising their ability to attract and retain qualified staff due to a failure to offer attractive enough salaries. Performance-enabling HRM practices Pay structures Averages are not out of line with comparator countries. Average public administration pay relative to per capita GDP in ECA Focus countries is comparable to that found in EU15 countries (only one Non-ECA Focus country had such data available), and modestly below those found in the EU15 and Balkans (see Figure 15). Within the general public administration, wages in the ECA Focus Countries relative to per capita GDP were about 18% lower than those found in EU15 countries. Comparable data were

-21- not available for the Non-ECA Focus countries. This pattern is similar, albeit at lower levels, for education and health & social work staff, although data for salaries of such staff in the EU15 countries is not available. Within the ECA Focus countries, education and health workers receive, on average, only 72% and 67% of what general public administration staff receive. In the EU8 countries, these ratios are 77% and 71%, respectively; while within the Balkans group, these ratios are 84% and 88%. CIS countries are significantly less generous in their pay for teachers and health care workers, providing them average salaries of only 53% and 43% of their general public administration staff, respectively. Comparable ratios could not be calculated for EU15 countries due to the absence of data on education and health and social worker salaries. In sum, average salary levels within the public administrations of the ECA Focus Countries, as well as within their education and health & social care cadres, are moderately lower than is the case in EU15 countries, averaging about 18% lower. 1.80 1.60 1.58 1.54 1.40 1.26 1.32 1.39 1.20 1.14 1.15 1.00 0.80 0.91 0.89 0.85 0.81 0.60 0.62 0.50 0.40 0.20 0.00 Public Administration Education Health & social work ECA Focus EU8 Balkans CIS EU-15 Figure 15: Average Wage Relative to GDP per Capita: Country Groups Compression ratios are not out of line. A step in the direction of providing evidence on salary structures is to examine vertical compression ratios, i.e., the ratio of total remuneration for staff in the highest ranking positions within a particular career ladder to total remuneration for staff in entry level positions within that same career ladder. Figure 16 summarizes evidence on such vertical compression ratios for civil service positions within a number of ECA countries, as well as several EU and OECD countries. For the three ECA Focus Countries for which such data are available, the vertical compression ratios fall within roughly the same range as do those in the five EU15 countries for which data is available 34 between 3.0 and 5.2 for ECA Focus Countries, between 3.7 and 8.2 34 Ireland, Germany, France, U.K. and the Netherlands.

-22- for EU15 countries (data available for only one Non-ECA Focus Country -- Ireland). In short, while ECA Focus Countries may want to consider further decompressing their salary structures, such a policy does not appear to be what most clearly distinguishes them from salary structure practices in sensible comparator countries. These ratios give a sense of the prospects for salary growth over the course of a career within a particular career stream in a given public administration; in this case, the civil service. That is certainly more helpful than simple average ratios of public administration remuneration to some given comparator, such as GDP or a particular sector of the economy. But even these ratios are less helpful than one needs, since they fail to clarify whether competitiveness of remuneration maintains some rough consistency across human capital requirements of public administration positions. Civil Service Compression Ratio Estimates 9 8 7 6 5 4 3 2 1 0 Moldova Slovakia Kazakhstan Kyrgyz R. Russia Czech R. Macedonia Serbia B&H Croatia Ireland Germany France UK Netherlands Figure 16: Civil Service Compression Ratios In response to these limitations in conventional indicators of the competitiveness of public sector remuneration, a number of ECA countries have undertaken surveys of public and private sector salaries, in order to provide systematic evidence on the pattern of competitiveness of public sector remuneration practices across positions requiring different types and quantities of human capital in order to shoulder different levels and scopes of responsibility and authority. While in many cases, these surveys have been undertaken as a one-off exercise, it will be important for ECA countries to institutionalize the administration of such surveys on a regular basis (e.g., every year or every other year), and make a practice of incorporating the evidence produced by those surveys into both annual salary adjustment deliberations, as well as more in depth reviews of salary structures, which may occur more infrequently or irregularly. The surveys that have been undertaken have revealed a pattern that has been found in developing countries throughout the world. Key characteristics of that pattern are:

-23-1. Competitiveness of total remuneration within the public administration tends to fall as human capital requirements rise. 35 2. Discretionary elements of remuneration vary considerably, but tend to become more important the greater are the human capital requirements of a position, surely in no small part in an effort to address the pattern of increasingly uncompetitive base pay as human capital requirements rise. 36 3. Seniority-linked pay is often large, thereby undermining efforts to ensure consistency in the competitiveness of salaries across positions. 37 4. Elements of salary advertised as performance-related vary in their magnitudes across countries, as well as across positions within any given country, and elicit mixed reactions from politicians, managers and other staff. On the one hand, they are viewed as an important device for rewarding good performers. On the other hand, their assignment to individual staff is often viewed as less than fair and not accountably linked to true performance. 38 Competitiveness Such public/private surveys have been undertaken in no fewer than eight ECA countries, and at least one of those countries (Macedonia) is in the process of institutionalizing such surveys as a regular part of the annual work program of the State Statistical Office. 39 A few examples from some of those surveys can serve to illustrate the above noted patterns in the competitiveness of public sector salaries (exclusive of SOEs). Table 1 provides a summary of the findings of the Bosnia-Herzegovina public/private sector salary survey, undertaken in 2005-6. It reveals that both basic pay as well as net total compensation fall as human capital requirements of positions rise. The pattern is more pronounced for the Federation than for the State, but it is the same pattern in both cases. Significantly, the State actually pays at or above private sector levels within the lower three ranks summarized in these tables. This is not an unheard of pattern within developing countries. 40 Moreover, it is a pattern that surely creates significant pressures to hire within those lower skilled ranks, particularly if political patronage is a common practice. At the other end of the skill spectrum, the less competitive salaries among the high skill positions make it difficult to attract and retain those higher level managerial and professional skill sets. 35 Reid and Scott (1994); Belman and Heywood (2004); Hay Group (2006); Gorodnichenko and Sabirianova Peter (2006); Kenward (2004); Lienert (1998); C 3 Management and Economic Consulting (2006). 36 Reid and Scout (1994); Nunberg (2000); PriceWaterhouseCoopers Public Service Pay Policies in Sub Saharan Africa draft (2004). 37 Hay Group (2006); Reid and Scott (1994). 38 OECD, Performance-related Pay for Government Employees: Main Trends in OECD Member Countries, GOV/PGC/HRM(2004)1, Human Resources Management Working Party Meeting (7-8 October 2004); OECD, Performance-related Pay for Government Employees: Executive Summary (Paris, France: July 2005). 39 Bosnia-Herzegovina, Bulgaria, Serbia, Russia, Moldova, Albania, Romania and Albania. 40 Reid, Gary J. and Graham Scott, Public Sector Human Resource Management: Experience in Latin America and the Caribbean and Strategies for Reform, Green Cover Report No. 12839, Public Sector Management Division, Technical Department, Latin America and the Caribbean Region (World Bank, Washington, DC: March 14, 1994).

-24- Table 1: Bosnia-Herzegovina Public/Private Sector Salary Survey Findings (2005-6) Net basic pay in the private sector versus State and Federation (KM) As % private sector median Private sector State Fed State Fed Job titles Median P25 P75 Head of function / middle management 1,900 1,100 2,500 1,152 697 61% 37% Senior professional 1,500 850 1,800 912 655 61% 44% Experienced professional 950 625 1,350 840 645 88% 68% Basic professional 750 590 1,098 768 624 102% 83% Administrative staff / clerk 600 500 800 624 364 104% 61% Manual worker 500 350 639 480 364 96% 73% Net total compensation in the private sector versus State and Federation (KM) Head of function / middle management 2,050 1,321 2,915 1,402 997 68% 49% Senior professional 1,621 1,102 1,894 1,162 955 72% 59% Experienced professional 1,166 773 1,489 1,090 945 93% 81% Basic professional 950 694 1,330 1,018 924 107% 97% Administrative staff / clerk 791 600 1,040 874 664 110% 84% Manual worker 685 427 947 730 664 107% 97% A similar pattern is evident in the other public/private sector salary surveys. To illustrate, consider Table 2, which reveals an identical pattern of decreasing competitiveness as human capital requirements rise in Bulgaria. In Bulgaria s case, average competitiveness is lower than in Bosnia-Herzegovina s case; surely reflecting in part a higher political priority attached to public sector salaries in Bosnia-Herzegovina than in Bulgaria. But other factors are undoubtedly at play as well. The important point is the pattern of decreasing competitiveness with rising human capital requirements, which undermines efforts to attract and retain qualified staff at the higher skill levels precisely those levels that are most important for effectively managing public entities. Table 2: Bulgaria Public/Private Sector Salary Survey Results (2002) Benchmark Job Level Ministries Job Reference Total Salary 25th %- ile (Lower Quartile) Private Sector Median 75th %- ile (Upper Quartile) Ministries position salary as % private sector median Junior Expert JE 321 455 650 1184 49% Senior Expert SE 384 748 902 1475 43% Chief Expert CE 413 973 1257 1810 33% Head of HOS 457 1159 1718 2254 27%

-25- Benchmark Job Level Sector Department Head Ministries Job Reference Total Salary 25th %- ile (Lower Quartile) Private Sector Median 75th %- ile (Upper Quartile) Ministries position salary as % private sector median HOD 518 1658 2440 3293 21% Director DIR 679 3220 4068 4906 17% A similar survey in Romania found this same pattern of consistently declining competitiveness of public sector salaries as skill requirements rose. Entry level civil servants earned 59% of comparably skilled personnel in Romania s private sector, while high level managers earned only 19% of their private sector counterparts. This pattern was replicated in base pay, although in a slightly more attenuated form (base pay falls from 56% to 20% of private sector base pay for the same two types of positions). 41 Russia, on the other hand, provides an example of a slightly different pattern, but still one which fails to ensure consistency in the competitiveness of public sector remuneration. Table 3 reveals that in Russia, the least competitively paid positions (among those covered by the survey) are the upper level professional and middle level management cadres. In short, one can expect Russia s public administration to be plagued by a missing middle ; i.e., difficulty in attracting and retaining qualified staff is likely to be particularly acute among those upper level professionals and middle level managers. Table 3: Russia Public/Private Sector Salary Survey Results (2003) Benchmark Job Level Civil service (USD per month, gross) Russian Foreign Foreign Private Private Private Sector Sector Sector (Median) (Lower (Median) Civil Service as % of private sector median in: Russian Foreign Quartile) owned owned Deputy Minister 985 3,442 4,817 5,816 29% 17% Head of Department 721 2,200 2,984 3,642 33% 20% Head of Section 302 1,555 2,003 2,793 19% 11% Chief Specialist 165 1,070 1,592 1,941 15% 9% Leading Specialist After 1-2 years 147 618 939 1,242 24% 12% 41 Hay Group, Consulting Services for a Comprehensive Private/Public Survey in the Romanian Civil Service (April 7, 2006), p. 61.

-26- Elements of remuneration Elements of remuneration linked to factors other than human capital are often large and variable across seemingly similar positions. The Romania public/private sector salary survey documented such a pattern. For 12 Director positions, lodged in four distinct public entities, the fraction of total remuneration accounted for by discretionary elements of pay 42 ranged between 0% and 45%. Within those same positions, elements of remuneration that could be plausibly be considered to be linked to human capital requirements 43 accounted for between 23% and 80% of total remuneration, averaging only 51%. Seniority-linked elements of salary for those 12 similar positions varied between 5% and 20% of total remuneration, averaging 13%. Finally, special salary supplements, targeted at staff working in public entities that handle money, accounted for between 0% and 67% of total remuneration, averaging 55% among positions in those entities qualifying for this salary supplement. Similar salary composition problems are evident in most ECA countries, as well as countries in other regions, whenever a careful analysis is undertaken. 44 Excessive reliance on elements of remuneration not tightly linked to the human capital requirements (skills, levels and scope of responsibilities) of positions makes it difficult to ensure consistency in competitiveness of remuneration within ECA Focus Countries. Examples of such elements include seniority, honoraria for sitting on Boards, housing, transportation allowances, among others. The Hay Group survey of salaries in Romania s public administration also provides an example of such practices. Table 4 shows that the fraction of total remuneration attributable to base pay varied across types of public bodies in Romania, but ranged between 52% and 67%. Even if managerial bonuses are added to that total, on the grounds that they are tied to the human capital requirements of the position, and overtime is also added, the total fraction of salary likely to be reasonably well linked to those human capital requirements is in the range of about 55% to 74%. This compares unfavorably with developed country averages of between 90% and 100%. Romania is no exception among ECA countries, and probably not among ECA Focus Countries either. 45 Table 4: Pay Structures for Civil Servants (by Type of Public Institution) 46 Pay Element Type 1 Type 2 Type 3 Type 4 Base Salary 60% 52% 52% 67% Managerial Bonus 4% 3% 2% 2% 42 These include performance salary, dispositiv allowance, bonuses, committee attendance bonuses, and various other salary supplements. Hay Group, Consulting Services for a Comprehensive Private/Public Survey in the Romanian Civil Service (April 7, 2006). 43 Base salary, managerial bonus and scientific title bonus. 44 Macedonia: Public Expenditure and Institutional Review, (March 2002) see especially chapter 5; Armenia: National Institutional and Governance Review, (World Bank: April 2000); Barbara Nunberg, Ready for Europe: Public Administration Reform and European Union Accession in Central and Eastern Europe, World Bank Technical Paper No. 466 (The World Bank: Washington, DC, 2000); Reid, Gary J. and Graham Scott, Public Sector Human Resource Management: Experience in Latin America and the Caribbean and Strategies for Reform, Green Cover Report No. 12839, Public Sector Management Division, Technical Department, Latin America and the Caribbean Region (World Bank, Washington, DC: March 14, 1994). 45 See, e.g., Grant (2002), which documents a similar pattern in Bulgaria. 46 Romania Public Expenditure and Institutional Review, two volumes, Report No. 36363 (The World Bank, Washington, DC: November 2006). Source for the PEIR data: Hay Group (2006).

-27- Pay Element Type 1 Type 2 Type 3 Type 4 Performance Salary 2% 2% 2% 2% Seniority Allowance 13% 11% 10% 13% "Dispozitiv" 0% 2% 0% 0% Allowance Loyalty Allowance 8% 0% 0% 0% Overtime 5% 4% 1% 7% Bonuses 5% 3% 1% 5% CFP & Audit Bonus 3% 0% 0% 0% Special Conditions 0% 0% 1% 0% Bonus Scientific Title Bonus 0% 0% 0% 0% Incentive 0% 21% 29% 0% Various Committees 0% 0% 0% 0% Attendance Bonus Toxic Conditions 0% 0% 0% 0% Bonus Other B/A 0% 1% 1% 3% Note: Type 1 represents public institutions subordinated to the central Government; type 2 covers ministries; type 3 covers public institutions subordinated to ministries; type 4 covers local public institutions. Significant managerial discretion and lack of accountability with which such salary supplements are assigned to individual staff is another important factor contributing to variance in the competitiveness of total remuneration. In the Kyrgyz, for example, Ministry-level averages for average monthly total earnings ranged between $72 and $169 (235% variance) for a Head of Apparat (below deputy minister), and between $30 to $56 (187% variance) for a Specialist Category 1 (lowest civil servant). Similarly, in Slovakia, the monthly salary of a State Secretary varied between 47,500 and 76,550 Slovak crowns, exclusive of any monthly bonus, a range of 161%. Figure 17 provides another example of such variance, made possible both by numerous and sizable elements of remuneration beyond base pay, coupled with significant managerial discretion in the assignments of those additions to pay, this example drawn from the city of Bucharest. Romania: Earnings of Directors in Four Bucharest-based Institutions (2005) 120000 100000 Lei per month 80000 60000 40000 20000 Additions Base pay 0 A A A A A B B C D D D D Institution Figure 17: Romania -- Earnings of Directors in Four Bucharest-based Institutions (2005) Use of bonuses by ECA Focus countries is excessive and risky: In the Non-ECA Focus countries, which tend to have more competitive private sectors, bonuses are more prominent in the private than the public sector. The reverse is the case in ECA Focus countries;; i.e., for those ECA Focus countries for which data is available, reliance on

-28- bonuses in the public sector, relative to such reliance in the private sector, is greater than in the Non-ECA Focus countries (see Table 5). Poland s ratio of public/private sector bonuses as a fraction of total remuneration is, far and away, the least balanced example (too much reliance on bonuses in the public sector). This is particularly risky, given how difficult it is to get performance bonus systems to work effectively in the public sector, even in advanced countries. 47 The challenges are certainly greater in developing countries, as was demonstrated by research on the performance of public entities in three ECA Focus countries: Slovakia, Romania and the Kyrgyz. 48 That research found that a higher incidence of staff in public entities claiming performance management practices were employed, was not associated with better entity performance, at least not in Slovakia or Romania. In the Kyrgyz, the country in which management accountability mechanisms appear to be the weakest, a significant negative relationship was found between performance management practices and measured performance where one of the measures of (negative) performance was bribe-taking by staff of the entity. In short, performance-based bonuses are a risky personnel management tool, particularly in the public sector, and particularly in public administrations in which means of holding organizational units accountable for their performance are weak. Given these caveats, ECA Focus countries appear to rely more heavily on bonuses than is probably wise. Table 5: Bonus Pay Comparisons 49 % of Gross Annual Earnings from Bonuses Public administration and defence; compulsory social security Public Sector Education Health and social work Private Sector Services (excluding public administration) Total industry (excluding construction) Average ratio public/private ECA Focus Countries Poland 5.9% 5.1% 2.1% 0.8% 0.3% 1.97 Romania 5.4% 5.2% 4.1% 7.8% 6.4% 0.17 Slovak Republic 15.7% 16.2% 10.9% 14.8% 14.3% 0.24 Non-ECA Focus Countries Ireland 0.1% 0.0% 0.0% 4.2% 4.5% 0.00 Spain 11.3% 12.0% 18.2% 15.9% 0.11 47 OECD, Performance-related Pay for Government Employees: Main Trends in OECD Member Countries, GOV/PGC/HRM(2004)1, Human Resources Management Working Party Meeting (7-8 October 2004); OECD, Performance-related Pay for Government Employees: Executive Summary (Paris, France: July 2005). http://www.oecd.org/dataoecd/16/11/35117916.pdf 48 Anderson, James; Reid, Gary J.; and Randi Susan Ryterman, Understanding Public Sector Performance in Transition Countries: An Empirical Contribution, mimeo, (Washington, DC: The World Bank, June 30, 2003). http://www1.worldbank.org/publicsector/civilservice/upsp%20final.pdf 49 See Annex 1 for data sources.

-29- Impacts of remuneration practices The impacts of improving public sector salary structures are examined empirically with less frequency than one would hope. While some empirical analyses reveal a negative relationship between average public sector pay levels and corruption across countries 50, others find no evidence of a positive relationship between average public sector pay levels and the performance of a public administration or of individual public entities. 51 A recent analysis of microdata on individual pay levels and imputed bribery in Ukraine found fairly robust evidence that, at least in Ukraine, public servants, on average, just compensate for the extent to which their formal pay falls short of what they could command in Ukraine s private sector through bribery. 52 Despite these mixed empirical findings, both Bank staff and policy makers in virtually all ECA client countries believe quite strongly that improving remuneration is fundamental 50 Rijckeghem, Caroline van, and Beatrice Weder (1997), Corruption and the Rate of Temptation: Do Low Wages in the Civil Service Cause Corruption? IMF Working Paper WP/97/73 (International Monetary Fund, Washington DC). Regarding uncompetitive remuneration, PWC (2004) states (pp. 8-9): The argument that adequate pay is crucial to sustaining motivation, performance and integrity of public servants has been widely accepted and documented. There is evidence from all around the world that Government workers either cut back their productivity or hours of work when salaries are low. The reduction in production is greater as the compensation diminishes. Otherwise, they will actively seek to change jobs to the private sector. McPake et al and Isar et al show, based on country surveys, that low salary levels result in absenteeism, alternative employment, rent-seeking (e.g. the per diem problem, sitting allowance) and low productivity. A World Bank survey focusing on African countries has observed that, as government compensation falls, both in absolute terms and relative to alternative remunerative activities, civil servants adjust to the new situation. Turnover rates and absenteeism increase; moonlighting and daylighting become more frequent, and the latter, more blatant, recruitment and retention, especially of professionals, become more difficult. It has also been argued that petty corruption rises, including the sale of government services themselves, for example, under-the-table charges for livestock vaccinations or the extorting on payments by teachers to instruct schoolchildren. The survey concluded that the reform of civil service pay is especially vital for the rehabilitation of Government, particularly in terms of realizing improvements in capacity and the delivery of public goods and services (Lindauer & Nunberg). The case is also well made that low pay demotivates and stimulates corruption in the public service. Moses Kigundu makes the observation that, in Africa where most Governments do not pay minimum living wage to their employees, remuneration is so low as to lead to institutionalised corruption, laxity and general lack of discipline. Rijckegham and Weder present econometric evidence from 31 countries showing correlation between relative civil service wages, meritocracy and corruption. They conclude that active wage policy can help in tackling corruption. In Tanzania, the 1997 report of the Presidential Commission of Enquiry on Anti- Corruption emphasized the link between what it described as petty corruption and low public service pay. Therefore, enhancing public service pay is part of the National Anti-Corruption Strategy published in 2000. Similarly, the Anti-Corruption Strategies of several other countries give prominence to pay enhancement. However, as Filmer and Lindauer[iv] observe in the context of Indonesia, simple linkage between pay and corruption can be misleading. Changes in compensation levels can only work if they are part of a package to reform public servants behaviour. Other elements are essential to reducing corrupt practices. 51 Rauch, James E. and Peter B. Evans, Bureaucratic Structure and Bureaucratic Performance in Less Developed Countries, Journal of Public Economics, Vol 75(1), (2000): 49-71; Anderson, James; Reid, Gary J.; and Randi Susan Ryterman, Understanding Public Sector Performance in Transition Countries: An Empirical Contribution, mimeo, (Washington, DC: The World Bank, June 30, 2003). Evans and Rauch (2000) found meritocratic recruitment and selection significantly impacted performance of public bureaucracies, while pay and promotions practices did not. Anderson, Reid and Ryterman found the same pattern of results. 52 Gorodnichenko, Yuri and Klara Sabirianova Peter. Public Sector Pay and Corruption: Measuring Bribery from Micro Data, IZA Discussion Paper No. 1987, Research Paper Series No. 06-05, Institute for Study of Labor IZA, Andrew Young School of Policy Studies, Georgia State University (2006).

-30- to improving the performance of both core public administration functions, as well as public service delivery. The mixed results of studies of average public sector remuneration, coupled with both the Ukraine microdata study as well as the above-cited evidence that public sector remuneration tends to be more competitive for some skill sets than others, suggest that adjusting average public sector salaries may not be as important as improving the structure of public sector remuneration. By improving the structure, we mean, at a minimum, ensuring consistency in the competitiveness of total remuneration. Other improvements often needed include (a) concentrating a larger share of total remuneration in those elements of pay tied to the human capital requirements of positions, (b) keeping discretionary elements of salary, including performance bonuses, down to modest levels, and (c) limiting the share of total remuneration based on seniority. A further implication of these conclusions is that, aside from cost-of-living adjustments, most of the salary growth available to public employees should come through promotions practices, rather than through annual discretionary assignments of either one-off performance bonuses or performance-based step increases. This further implication also reflects the recognition that it is likely to be easier to get promotions practices to link rewards (promotions) to performance than to get annual salary adjustments or performance bonuses to reliably assign such rewards (either salary increases of one-off bonuses) on the basis of performance. This recognition is based on two considerations, regarding (i) expectations and (ii) transactions costs. Expectations that most, if not all staff, will receive noticeable annual salary increments tend to be stronger than expectations that most staff deserve frequent promotions. Because of this, if salary increments (above cost-of-living adjustments) are concentrated in one s progression up the promotions ladder, the processes for awarding promotions will likely meet with less resistance to selectivity based on performance than will processes for awarding salary increments as part of the annual performance-assessment and salary-adjustment process. 53 Regarding transactions costs, since promotions decisions are considerably less frequent than annual salary adjustment decisions (or annual performance bonus decisions), it is easier to justify devoting larger resources and creating more thoroughgoing checks on promotions decisions than on annual salary adjustment (or performance bonus) decisions. Such more costly and thoroughgoing checks more readily justified for promotions decisions should enhance the odds that promotions decisions can be made to reliably reflect performance, when compared to annual salary adjustment (or performance bonus) decisions. In addition, HRM practices rarely offer significant non-financial reasons for staff to focus on how they can best help their organizational unit meet organizational objectives, despite the facts that (i) most ECA Focus Countries simply cannot afford to rely solely on financial inducements to attract and retain qualified staff and motivate them to perform, and (ii) a significant body of research provides compelling evidence that getting staff to identify with the organizational objectives of the entity for which they work is a 53 In well functioning organizations, with rapidly rising productivity (and, hence, rising capacity to finance salary increases reflecting those productivity improvements), it will likely be less difficult to get annual performance review and salary adjustment processes to reliably assign monetary rewards based on performance. But most public administrations are not characterized by continuous and rapidly rising productivity and wage-bill-financing capacity; particularly those in developing countries..

-31- considerably more cost-effective means of managing staff for results than are financial rewards based on evaluated performance. 54 Given all of these considerations, it is surprising how infrequently the intended impacts of public administration salary reforms are monitored, let alone subjected to rigorous evaluation. 55 Other HRM Practices While pay and employment levels in ECA countries are, on average, roughly similar to those found in OECD or EU countries, but subject to greater variation, at least two personnel management challenges appear to be common to many ECA countries, both of which significantly impact the effectiveness and efficiency with which human resources are employed in ECA countries: (i) politicization of the civil service and public employment practices more generally; and (ii) absence or extreme weakness of institutionalized mechanisms that systematically focus agencies and their personnel on achieving policy objectives (i.e., weak policy and performance accountability). Politicization An important legacy of the communist era in many ECA countries has been extreme politicization of public employment. Many FSU countries are plagued by apparats, which impose a parallel administration that wields significant power, while CEE countries, though less prone to apparats, nevertheless often find their public administrations highly politicized. Strategically located apparats, such as that found in Azerbaijan, eviscerate capacity within line ministries by supplanting their primary sources of authority (policy formulation, resource allocation, oversight of policy implementation). Such practices leave ministerial officials either unable or unwilling to exercise any authority, for fear of crossing powerful apparat interests, thereby making hundreds, if not thousands, of ministry employees ineffectual or redundant. 56 The result is typically both underutilization of existing public officials outside the apparat and weak capacity of the public administration to implement policies. In many CEE countries, the dynamics of politicization differ, but the impacts are equally debilitating. Countries like Romania, Bulgaria, the Czech Republic, Macedonia, Bosnia- Herzegovina and Albania either have not or have only recently enacted Civil Service Laws designed to, among other things, depoliticize at least a core cadre of public officials. Until such laws are effective, their public administrations are likely to remain 54 Levine and D Andrea Tyson (1990) found that [g]uaranteed individual rights for workers, an independent role for worker voice, and substantive rather than consultative participatory arrangements were important in influencing performance. See also: Akerlof and Kranton (2005); Wilson (1989); Kaufman (1993); Tendler (1997); Appelbaum and Batt (1994), Simon (1991). 55 See Reid (2005) for an example of monitoring of civil service reform impacts and how that has contributed to a successful reform effort. 56 A Bank review of public administration issues in Azerbaijan found that [t]he sectoral divisions of the Council of Ministers (COM) operate as de facto ministries, performing all the functions that a ministry would normally perform: policy development, oversight of policy implementation; and legislative initiatives. In practice, nothing goes to the COM without the line ministries orally discussing and obtaining approval from the COM Apparat beforehand. Anecdotal evidence indicates that policy initiatives normally originate from the COM or from above it; rarely does any policy initiative originate from the ministry level ( Azerbaijan Public Sector Strategy, draft (October 1998)).

-32- politicized. This is particularly deleterious in countries subject to instability in their political leadership. ECA examples might include Poland, Macedonia, Albania and Romania, to name a few. Poland, for instance, has had four elections, out of which eight Governments have been formed over the 1989-2000 period (plus one Prime Minister was appointed but failed to form a Government), six of which were coalition Governments and one of which was a minority Government. 57 In such countries, the absence of effective institutionalized procedures and practices designed to insulate the management of the civil service from excessive political pressures, undermines the public sector s capacity to attract and retain the human capital skills they need. 58 Such politicization also undermines policy and performance accountability (see below) by reducing the credibility of government-enunciated policies among the public officials responsible for implementing those policies. Evidence from a survey of public officials in Armenia found substantial skepticism among many staff regarding the ministerial decrees that they were required to implement, 59 Their skepticism reflected such things as their expectation that policies would be changed or contradicted frequently, as well as that their implementation would be subject to political micro-management. Importantly, that same survey found evidence that public agencies less buffeted by political micromanagement and frequently changing or contradictory policy directions actually performed their functions more effectively. 60 In short, politicization is an important problem in both FSU and CEE countries, even though it takes different forms in different countries. It undermines the public sector s capacity to attract and retain the human capital skills needed for good performing public agencies. At least as importantly, even among those workers who finally are recruited into the public sector, politicization significantly compromises the credibility of government-enunciated policies, thereby undermining the capacity of public agencies to implement those policies. Poor policy and performance accountability Most ECA countries have, to date, made little headway in establishing the rich web of institutional arrangements that are needed to put constant, subtle but effective pressure on public agencies and their employees to meet stable policy objectives. The foundation of such webs of accountability mechanisms is clear, agreed and relatively stable policy objectives for each public agency or organizational unit. Such clarity and agreement on 57 Source: Judyta Fieden (SIGMA). 58 Macedonia provides an instructive example. See: FYR of Macedonia: Public Expenditure and Institutional Review, (March 2002) see especially chapter 5. 59 Armenia: National Institutional and Governance Review, draft chapter 6 Improving the Policy Capacity of Government (World Bank: April 2000), pp. 99-100. The public officials survey constructed an indicator for policy credibility - the degree to which public officials feel that they are bound to implement the policies asked of them. The indicator was constructed from data from four questions: whether officials considered that the policies would be contradicted or changed rapidly; whether policies were communicated well; whether they agreed with the policies; and whether political micro-management undermined those policies in practice. 60 Ibid.: Improving policy credibility for staff is an important contribution to performance. Further analysis of the survey data allowed a comparison between government bodies where staff felt that policy quality was good and others where they were less convinced. Strikingly, the results indicate that increasing staff perceptions on the quality and consistency of policy is the single largest driver of performance.

-33- stable policy objectives is largely missing in most ECA countries; thereby rendering moot any efforts to hold public agencies and their staff accountable for meeting policy objectives. As such, an important element of much of the Bank s recent work with ECA countries has been aimed at creating mechanisms that can be expected to create pressures on governments and their public administrations to agree on clear policy objectives and to hold themselves accountable for achieving them. Examples of the sorts of mechanisms that are largely absent in ECA countries include both within-the-hierarchy and external-to-the-hierarchy devices. Examples of the former include organizational performance reporting requirements coupled with review requirements by higher authorities, such as the relevant minister, the Ministry of Finance (as an element of budget formulation and execution procedures), an inter-ministerial committee, and the Council of Ministers or Parliament. Examples of the latter include press reporting on how well public agencies are meeting their mandates; involvement of citizens in the design and provision of particular public services; hot lines allowing citizens to register satisfaction or complaints about particular public agencies or the services or programs they administer; surveys of citizens satisfaction with the quality of public services provided by particular public agencies; oversight by NGOs, etc. 61 An important consequence of this general absence of webs of mechanisms to create accountability pressures is ineffective human resource management practices. Personnel performance evaluation systems are weak to non-existent. Personnel actions are often at the almost unfettered discretion of the head of the agency (e.g., the Minister for Ministries), with little or nothing in the way of written guidelines, procedures or rules governing personnel actions. Oversight of personnel management is often weak to nonexistent. Given such weaknesses in personnel management accountability mechanisms, it is not surprising to hear frequent anecdotes of such things as agencies with a very small number of staff who do all the work, while legions of other staff do little or nothing; or severe understaffing of some functions coupled with overstaffing of other functions. In Macedonia, for instance, while the Ministry of Finance employed approximately 1680 employees in 1999, its central Budget Department had only 11 staff spread across the Department Directorate (1 staff) and its six divisions: budget preparation (1 staff), treasury (3 staff), debt management (0 staff), budget control (1 staff), budget accounting (2 staff), and macroeconomic planning and analysis (3 staff). 62 As another example, Albania s education sector has enrollments (per total employment in the economy) comparable to OECD averages (58.0% in Albania vs. an OECD average of 57.2%), and employs teachers at roughly the same rate as OECD countries (3.8% of total employment vs. 3.9% for OECD countries). At the same time, it appears to skimp on support staff in education, relative to OECD countries (0.4% of employment vs. 1.7% among OECD countries). While there may be good reasons for Albania to employ so few support staff in education, this could as easily reflect poor prioritization in the allocation of human resources devoted to education; in no small part due to inadequate pressures on the Ministry and its various arms to deliver cost-effective education. 61 Barbara Nunberg, Ready for Europe: Public Administration Reform and European Union Accession in Central and Eastern Europe, World Bank Technical Paper No. 466 (The World Bank: Washington, DC, 2000) see, especially, pp. 91-97. 62 Subsequent reorganization and recruitment have brought staffing within the Budget Department up to 17, which is still very small relative to its wide-ranging remit. Source: Macedonia Ministry of Finance.

-34- In sum, poorly developed webs of accountability mechanisms undermine human resource management in many ECA countries. This shows up in enclaves of overworked public employees side-by-side with pools, sometimes large, of under-utilized public servants. It shows up in skill mixes that are unlikely to be optimal e.g., too many unskilled workers in the Ministry of Finance, but too few budget analysts in the Budget Department. Ultimately, it shows up in poor service delivery performance and low efficiency. Fortunately, substantial work addressing the need to develop better webs of accountability mechanisms in many ECA countries is being supported by a variety of donors, including the Bank, the EU with the help of SIGMA, and numerous bilateral donors.

-35- Annex 1: Public Administration Data Sources These notes accompany the full background dataset for the Public Administration chapter of the ECA Fiscal Study. The background files include year/source notes for every data point. Where a source is not cited, the figure is calculated from other data in the worksheet or background data. (e.g., labour force as % population.) Also available are numerous raw data files (e.g. data as downloaded from national statistical offices, Eurostat, and other sources) for future reference. 1. General note on data sources World Bank staff files are not always a particularly good source of comparable datasets for multi-country analysis. The Bank s holdings tend to be fragmented, utilise varied (and sometimes unclear) definitions and categories, and generally do not have adequate time series. Likewise, published OECD data offer limited coverage of countries and indicators, and are not updated frequently enough to be useful for the purpose of this study. For comparable time-series data, the best sources we found are online databases of the following organizations: Eurostat Time series of: population; wages & salaries by economic activity (Euro) ILO Time series of: economically active population; public sector employment by type of institution and level of government, total and private employment; total and public employment by economic activity. However, ILO s population data are fragmented. National statistics offices Wages & salaries by economic activity (LCU), sometimes for multiple years. IMF GFS Fiscal data, in the new GFS 2001 classification which uses different categories and is not comparable to the old GFS86. 2. Indicator titles Some indicator titles have been revised (relative to the late 1990s update) to reflect current data categories. For example, the new earnings ratios refer to public administration (from NACE 63 classification) rather than government wage. 3. Earnings data by economic activity (NACE) 63 NACE : "Nomenclature statistique des Activités économiques dans la Communauté Européenne" - Statistical classification of economic activities in the European Community.

-36- For EU member countries, a good source for earnings data by NACE classification is the 2002 round of a survey that is carried out every 4 years and yields comparable data. Note that most EU countries do not report earnings for every NACE category, notably public administration, health, and education. However, Eurostat provides averages for EU-25, EU-15, 10 new member states, and the Eurozone for these categories. We also checked websites of national statistical offices for several EU countries (Austria, Germany, Belgium) and, even after a lot of searching, could not find the NACE earnings data needed for our table. Some, but not all, ECA country statistical offices report NACE earnings by form of ownership; where this is the case, we have included data for public- and privateownership. Note that in every such instance, average public sector salaries are higher than average private sector salaries in industry, manufacturing, and financial sector. This is typical, and is normally ascribed to differences in skill composition between public and private sector employers; i.e., public sectors typically employ a higher proportion of white collar workers than do broad private sector industry classifications (e.g., manufacturing sector). 4. Compression ratios We wouldn t put much weight on ratios from secondary sources (i.e. not calculated directly from our micro-data), since they do not cite the reference year or positions, making it difficult to interpret the results. 5. Publicly-owned enterprises The best source we found was the ILO s online database (LABORSTA), which presents an employment time series for publicly-owned enterprises. Although some not all statistics offices do present some information on publicly/state-owned enterprise employment, they generally focus on number of SOEs by size of workforce (expressed as a range, so it's not possible to accurately extrapolate total employment) and sometimes but not always also indicate form of ownership. We saw no information on total wage bills of SOEs, whether on statistical office websites or in World Bank files. In most cases World Bank colleagues responded that SOE employment/wage bill data are not available (although they had tried to get at least employment figures in the past.) In general, statistical offices tended to present data on number of enterprises (generally, not state-owned) by size, output, etc. 6. Data specifications & notes from original sources ILO employment data For full footnotes on employment data, refer to the ILO database or our background files (HTML tables only.) For many or most of the countries, 1990 data often refer to 1990 or year close to 1990 ; and after a break or when a series starts in 1995, data often refer to 1993, 1994 or 1995. The data classification (for type of institution and economic activity) is ISIC rev.3. The unit of measurement is all employed persons except in the following cases:

-37- o Albania, Armenia, Austria, France: unknown, o Bosnia & Herzegovina, Bulgaria, Lithuania persons with regular contracts o Hungary: persons working full time o Italy, Netherlands, New Zealand, Poland: employment as full time equivalents o Georgia: for health and education employment only, unknown The main footnotes to data for individual countries are copied below. Croatia: Not included employed persons at Ministry of Internal Affairs, Ministry of Defense and individual farmers. Czech Republic: For 1998-2000 preliminary data. Civil sector only. Estonia: Annual averages. Population aged 15-69. Since 1997: population aged 15-74. Finland: Employment in private sector including employment in publicly owned entreprises. Hungary: Data related to total Gouvernment and to enterprises with more than 20 employees; since 1999, with at least 5 employees. Employment in total public sector does not include two publicly run utility (Refers to year 2000.) Luxembourg: Employees. Malta: Data prior to 2000 refer to Dec. and excludetemporary employed persons (apprentices, trainees and student). Moldova: Excepting the regions situated on the left bank of the river Dniester and the M. Bender. New Zealand: From 1990 to 1997, Central Bank employment not included. Private sector estimates exclude Agriculture and Fishing. Russia: Others NPI refer to data on court institutions and public security bodies. Slovenia: The data refer to 31 December. The data for 1995-1996 are not comparable with those for 1997-1998 because of the changed methodology Switzerland: All branches of economic activity, excluding agriculture, fishing and international organizations. Thailand: Data refer to August. Turkey: 1995 data refer to October; 1996-1998 data are the average of April and October; 1999 data refer to April. United Kingdom: Data refer to June. United States: Civilian employment. 7. Main definitions used by sources Population World Bank (file from ECA Chief Economist s Office ): Total population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship--except for refugees not permanently settled in the country of asylum, who are generally considered part of the population of their country of origin. Eurostat: Total Population: This can be either the population on 1 January or the average population during the year. Unless otherwise stipulated, the population on 1 January is used. Economically active population ILO: The economically active population comprises all persons of either sex who furnish the supply of labour for the production of economic goods and services as defined by the United Nations systems of national accounts and balances during a specified time-reference period. According to these systems the production of economic goods and services includes all production and processing of primary products whether for the market for barter or for own consumption, the production of all other

-38- goods and services for the market and, in the case of households which produce such goods and services for the market, the corresponding production for own consumption Two useful measures of the economically active population are the usually active population measured in relation to a long reference period such as a year and the currently active population or equivalently the "labour force" measured in relation to a short reference period such as one week or one day. Note that both of these definitions include both employed and unemployed. ILO public sector categories in the LABORSTA online database: The total public sector employment covers all employment of general government sector as defined in System of National Accounts 1993 (see Annex) plus employment of publicly owned enterprises and companies, resident and operating at central, state (or regional) and local levels of government. It covers all persons employed directly by those institutions, without regard for the particular type of employment contract. - The central government units consist in general of a single institution composed of departments or ministries, of autonomous agencies carrying out special functions, and of all NPIs which are controlled and mainly financed by public authority. Their fiscal, legislative and executive authority extends over the entire territory of the country. The administration units which provide some services to local residents but which are directly dependent on central units should be an integral part of central government unit (see Annex, paragraphs 4.117 to 4.122). - The state government units (or regional government units) consist of "state governments which are separate institutional units plus those NPIs that are controlled and mainly financed by state governments". Their fiscal, legislative and executive authority extends to the territory of the "state" (or region) into the country. They are often own autonomous agencies for special functions. (see Annex, paragraphs 4.123 to 4.127). - The local government units are institutional units whose fiscal, legislative and executive authority is generally much less than that of central or state (or regional) governments. They typically provide a wide range of services to local residents and often depend on grants or transfers from higher levels of governments. (see Annex, paragraphs 4.128 and 4.129). The general government sector employment is the total employment of all government units, social security funds and non-market Non Profit Institutions (NPIs) that are controlled and mainly financed by public authority. - The government units carry out government functions and have fiscal, legislative and executive authority, which extend to their competent geographical areas. - The Non Profit Institutions (NPIs) are legal entities which are autonomous from government units. They are classified under the general government only if they are non-market, as well as financed and controlled by public authority. - The social security funds are "social insurance schemes covering the community as a whole or large sections of the community, and are imposed and controlled by government units". They can operate at each level of government (see Annex, paragraph 4.130). The employment of publicly owned enterprises and companies is the employment of all units producing goods or services for the market and which are mainly owned and/or controlled by government units. And: ANNEX: Extract of chapter IV: Institutional units and sectors, pages 102-104 in: System of National Accounts 1993, Commission of the European Communities, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations, World Bank, Brussels/Luxembourg, New York, Paris, Washington, D.C., 1993. 3. The general government sector (S. 13) 4.113. The general government sector consists of the following group of resident institutional units: (a) All units of central, state or local government; (b) All social security funds at each level of government;

-39- (c) All non-market Non Profit Institutions (NPIs) that are controlled and mainly financed by government units. The sector does not include public corporations, even when all the equity of such corporations is owned by government units. It also does not include quasi-corporations that are owned and controlled by government units. However, unincorporated enterprises owned by government units that are not quasi-corporations remain integral parts of those units and, therefore, must be included in the general government sector.

-40- Annex 2: Bibliography Albania Albania: A Public Expenditure and Institutional Review, 2 volumes, Report No. 36453-AL (The World Bank, Washington, DC: June 2006). (My Documents/Ops/Albania/PER/Albania PER.zip) Albania Third Poverty Reduction Strategy Paper (PRSP) Progress Report and Joint IDA-IMF Staff Assessment, Report No. 34930 (The World Bank, Washington, DC: January 2006). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301412&menuPK=64187510&searchMenuPK=301440&theSit epk=301412&entityid=000112742_20060120174225&searchmenupk=301440 &thesitepk=301412 Albania Second Annual Poverty Reduction Strategy Paper (PRSP) Progress Report and Joint IDA-IMF Staff Assessment, Report No. 29285 (The World Bank, Washington, DC: June 2004). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301412&menuPK=64187510&searchMenuPK=301440&theSit epk=301412&entityid=000160016_20040628145015&searchmenupk=301440 &thesitepk=301412 Albania Joint Staff Assessment of the Poverty Reduction Strategy Paper (PRSP) Annual Progress Report, Report No. 26139 (The World Bank, Washington, DC: June 2003). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301412&menuPK=64187510&searchMenuPK=301440&theSit epk=301412&entityid=000012009_20030620143602&searchmenupk=301440 &thesitepk=301412 Albania Poverty Reduction Strategy Paper (PRSP)and Joint Staff Assessment, Volume 1, Report No. 23469 (The World Bank, Washington, DC: May 2002). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301412&menuPK=64187510&searchMenuPK=301440&theSit epk=301412&entityid=000094946_02012404004830&searchmenupk=301440 &thesitepk=301412 Albania Country Assistance Evaluation, Operations Evaluation Study, Report No. 33532 (The World Bank, Washington, DC: September 2005). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301412&menuPK=64187510&searchMenuPK=301440&theSit epk=301412&entityid=000012009_20050929094155&searchmenupk=301440 &thesitepk=301412 Albania Sustaining Growth Beyond the Transition: A World Bank Country Economic Memorandum, Report No. 29257 (The World Bank, Washington, DC: December 2004). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301412&menuPK=64187510&searchMenuPK=301440&theSit

-41- epk=301412&entityid=000090341_20050302125919&searchmenupk=301440 &thesitepk=301412 Reid, Gary J. The Political Economy of Civil Service Reform in Albania mimeo (The World Bank: June 2005): (My Documents/PSM/Politics of Admin Reform/Political economy of civil service reform in Albania.doc) Albania Beyond the Crisis: A Strategy for Recovery and Growth, Report No. 18658-ALB (The World Bank, Washington, DC: December 1998). (My Documents/Ops/Albania/CEM98/GREY/GREY.zip) Albania Public Expenditure and Institutional Review, 2 volumes, Report No. 21857-ALB (The World Bank, Washington, DC: April 2001). (My Documents/Albania/PER/Yellow Cover/PEIR-YC.zip) Armenia Armenia Civil Service Assessment: Status, Issues, Strategy, Report No. AM- EM-57225 (The World Bank, Washington, DC: October 1998). P/Armenia/PREM/PUBLICS/3GRAY/CSA_REV4.doc and other files in same folder) Armenia: Institutional and Governance Review (The World Bank, Washington, DC: 2000?) P:/ARMENIA/PREM/GENERAL/IGRxxxxx.doc where xxxx=chapter names multiple files; also My Documents/Ops/Armenia/IGR 12_06_00.zip). See chapter 5 on civil service, chapter 4 on budget management, chapter 6 on policy management, and chapter 7 on checks and balances. Public Expenditure Review for Armenia, Report No. 26973 (The World Bank, Washington, DC: August 2003). http://www.worldbank.org.am/external/default/main?pagepk=51187349&pipk= 51189435&theSitePK=301579&menuPK=64187510&searchMenuPK=301606&t hesitepk=301579&entityid=000012009_20031016113727&searchmenupk=30 1606&theSitePK=301579 (doesn t look at CSR) Tough Choices: Observations on the Political Economy of Armenia, Azerbaijan and Georgia, Working Paper No. 35371 (The World Bank, Washington, DC: December 2002). (restart reading at p. 12) http://www.worldbank.org.am/external/default/main?pagepk=51187349&pipk= 51189435&theSitePK=301579&menuPK=64187510&searchMenuPK=301606&t hesitepk=301579&entityid=000160016_20060313113935&searchmenupk=30 1606&theSitePK=301579 Croatia Building a Modern Public Administration, chapter 4 in Croatia Country Economic Memorandum: A Strategy for Growth through European Integration, Report No. 25434-HR (in two volumes), (The World Bank, Washington, DC: July 2003) http://siteresources.worldbank.org/intcroatia/resources/301144-1121189574957/croatia-complete.pdf or http://siteresources.worldbank.org/intcroatia/resources/301144-1121189574957/croatia_report_chapter4.pdf

-42- Croatia Regaining Fiscal Sustainability and Enhancing Effectiveness: A Public Expenditure and Institutional Review, World Bank Country Study, Report No. 22155 (The World Bank, Washington, DC: 2004). http://siteresources.worldbank.org/intcroatia/resources/peirfinaldrafteng.p df Croatia Country Assistance Evaluation, Operations Evaluation Study, No. 30714, (The World Bank, Washington, DC: November 2004). http://www.worldbank.hr/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301245&menuPK=64187510&searchMenuPK=301273&theSit epk=301245&entityid=000012009_20050111145255&searchmenupk=301273 &thesitepk=301245 Rutkowski, Jan, Does Strict Employment Protection Discourage Job Creation? Evidence from Croatia, Policy Research Working Paper, WPS3104 (The World Bank, Washington, DC: August 2003). http://www.worldbank.hr/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301245&menuPK=301272&searchMenuPK=301272&theSiteP K=301245&entityID=000094946_03082104020549&searchMenuPK=301272&t hesitepk=301245 Georgia (not much on CSR/pay & employment) Georgia: Poverty Reduction Strategy Paper (PRSP) Second Annual Progress Report and Joint IDA-IMF Staff Advisory Note, PRSP, Report No. 37356 (The World Bank, Washington, DC: September 2006). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301746&menuPK=64187510&searchMenuPK=301774&theSit epk=301746&entityid=000160016_20061011094722&searchmenupk=301774 &thesitepk=301746 Georgia: Poverty Reduction Strategy Paper (PRSP) Progress Report and Joint IDA-IMF Staff Advisory Note, PRSP, Report No. 32122 (The World Bank, Washington, DC: June 2005). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301746&menuPK=64187510&searchMenuPK=301774&theSit epk=301746&entityid=000160016_20050621152812&searchmenupk=301774 &thesitepk=301746 Georgia: Economic Development and Poverty Reduction Program and Joint Assessment, PRSP, Report No. 26964 (The World Bank, Washington, DC: August 2003). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=301746&menuPK=64187510&searchMenuPK=301774&theSit epk=301746&entityid=000012009_20031016111334&searchmenupk=301774 &thesitepk=301746 Corruption in Georgia: Survey Evidence, 2 volumes, Working Paper No. 19276 (The World Bank, Washington, DC: June 2000). http://intranet.worldbank.org/servlet/main?pagepk=51082757&pipk=51082767 &thesitepk=301646&menupk=64154159&searchmenupk=2418269&thesitep

-43- K=301646&ImgPagePK=64167970&entityID=000094946_02042604014620&se archmenupk=2418269&thesitepk=301646 Kyrgyz Republic Program Document: Governance Structural Adjustment Credit (GSAC), Report No. 25072-KG (The World Bank, Washington, DC: April 2003). (P:\KYRGYZ\PREM\GSAC\4BOARD\GSACOPDOApril02150Final.doc ) Governance and Service Delivery in the Kyrgyz Republic: Results of Diagnostic Surveys, Working Paper, Report No. 33256 (The World Bank, Washington, DC: July 2002). http://intranet.worldbank.org/servlet/main?pagepk=51082757&pipk=51082767 &thesitepk=305661&menupk=64154159&searchmenupk=2418230&thesitep K=305661&ImgPagePK=64167970&entityID=000160016_20050808151529&se archmenupk=2418230&thesitepk=305661 Civil Service Reform in the Kyrgyz Republic, UNDP, 1999, Kyrgyz Republic Poverty Reduction Strategy Paper (PRSP) Second Annual Progress Report and Joint IDA-IMF Staff Advisory Note (JSAN), PRSP, Report No. 35900 (The World Bank, Washington, DC: April 2006). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305761&menuPK=64187510&searchMenuPK=305789&theSit epk=305761&entityid=000160016_20060504103508&searchmenupk=305789 &thesitepk=305761 Kyrgyz Republic Country Economic Memorandum: Enhancing the Prospects for Growth and Trade, Report No. 29150 (The World Bank, Washington, DC: July 2005). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305761&menuPK=64187510&searchMenuPK=305789&theSit epk=305761&entityid=000012009_20060222130241&searchmenupk=305789 &thesitepk=305761 (largely ignores PAR/CSR issues) Kyrgyz Republic Poverty Reduction Strategy Paper (PRSP) Annual Progress Report, PRSP, Report No. 29208 (The World Bank, Washington, DC: June 2004). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305761&menuPK=64187510&searchMenuPK=305789&theSit epk=305761&entityid=000012009_20040616124157&searchmenupk=305789 &thesitepk=305761 Kyrgyz Republic National Poverty Reduction Strategy Paper (NPRSP) and Joint Assessment, PRSP, Report No. 25377 (The World Bank, Washington, DC: January 2003). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305761&menuPK=64187510&searchMenuPK=305789&theSit epk=305761&entityid=000094946_03020804002320&searchmenupk=305789 &thesitepk=305761 Kyrgyz Republic Public Expenditure Review: Fiscal Policies for Growth and Poverty Reduction, Economic Report No. 28123 (The World Bank, Washington, DC: March 2004).

-44- http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305761&menuPK=64187510&searchMenuPK=305789&theSit epk=305761&entityid=000012009_20040330102821&searchmenupk=305789 &thesitepk=305761 Kyrgyz Republic Country Assistance Evaluation, Operations Evaluation Study No. 23278 (The World Bank, Washington, DC: November 2001). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305761&menuPK=64187510&searchMenuPK=305789&theSit epk=305761&entityid=000094946_01121804110359&searchmenupk=305789 &thesitepk=305761 Poland EU-8 Public Administration Reform and Capacity in the EU-8: Poland, Background Paper, Report Number: 36930-GLB, ECSPE (The World Bank, Washington, DC: September 2006). My Documents\OPS\EU8\PublicAdministrationReformPoland.doc Conor O'Dwyer, "Civilizing the State Bureaucracy: The Unfulfilled Promise of Public Administration Reform in Poland, Slovakia, and the Czech Republic (1990-2000)" (May 1, 2002). Berkeley Program in Soviet and Post-Soviet Studies Working Paper Series. Paper 2002_01-odwy (Institute of Slavic, East European and Eurasian Studies, UC Berkeley: 2002). http://repositories.cdlib.org/iseees/bps/2002_01-odwy or http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1002&context=iseees/bps Glowny Urzad Statystyczny (GUS). Statistical Yearbook of the Republic of Poland. (Warsaw: Zaklad Wydawnictw Statystycznych, 1999.2000). Paradowska, Janina,. Pelniacy obowiazki. [ Fulfilling their Duties? ] Polityka (June 2, 2001), pp. 22.24. Matys, Michal,. Nie mozesz byc niczyj.. [ You Can t Be No One s ] Gazeta Wyborcza (June 2001), pp. 18.19. Krause, Kevin, Accountability and Party Competition in Slovakia and the Czech Republic. Doctoral dissertation, (Department of Government, University of Notre Dame: 2000). SIGMA, Poland Public Service and the Administrative Framework Assessment 2002 (OECD, Paris: 2002). http://www.oecd.org/dataoecd/41/15/34989227.pdf Surdej, Aleksander, Managing Labor Market Reforms: Case Study of Poland, Working Paper No. 31365 (The World Bank, Washington, DC: February 2004). http://www.worldbank.org.pl/external/default/main?pagepk=51187349&pipk=5 1189435&theSitePK=304795&menuPK=64187510&searchMenuPK=304822&th esitepk=304795&entityid=000090341_20050214141939&searchmenupk=304 822&theSitePK=304795 Poland Toward a Fiscal Framework for Growth: A Public Expenditure and Institutional Review, Economic Report No. 25033 (The World Bank, Washington, DC: January 2003). http://www.worldbank.org.pl/external/default/main?pagepk=51187349&pipk=5

-45-1189435&theSitePK=304795&menuPK=64187510&searchMenuPK=304823&th esitepk=304795&entityid=000094946_03040204013929&searchmenupk=304 823&theSitePK=304795 (largely ignores CSR/PAR, but calls for expenditure reductions) Phase I Summary Report: Ministry of Finance Change Management Technical Assistance, report funded by the U.S. Trade and Development Agency (TDA), prepared by Arthur Andersen (Arthur Andersen, Arlington, VA: March 2001). My Documents/Ops/Poland/raport mof_english_final.doc) Aide Memoire: Findings and Recommendations of a World Bank Mission on Ministry of Finance Management Reform Options mimeo (The World Bank, Warsaw, Poland: 28 January 2005). Romania Romania Public Expenditure and Institutional Review, two volumes, Report No. 36363 (The World Bank, Washington, DC: November 2006). http://www.worldbank.org.ro/external/default/main?pagepk=51187349&pipk=5 1189435&theSitePK=275154&menuPK=64187510&searchMenuPK=287323&th esitepk=275154&entityid=000090341_20061205101152&searchmenupk=287 323&theSitePK=275154 Romania Country Assistance Evaluation, Operations Evaluation Study, Report No. 32452 (The World Bank, Washington, DC: May 2005). http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187283&sitename =WDS&entityID=000012009_20050620092117 largely ignores governance/csr/par, focusing on PSD and poor Government commitment Romania Country Economic Memorandum: Restructuring for EU Integration The Policy Agenda, Report No. 29123 (The World Bank, Washington, DC: June 2004) http://www.worldbank.org.ro/external/default/main?pagepk=51187349&pipk=5 1189435&theSitePK=275154&menuPK=64187510&searchMenuPK=287323&th esitepk=275154&entityid=000012009_20040622103101&searchmenupk=287 323&theSitePK=275154 Reid, Gary J., Comments on 25 June 2004 Draft CS Pay Law, mimeo (The World Bank, Bucharest, Romania: July 2004). My Documents/Ops/Romania/Civil Service/Salary reform/comments on Draft Pay Law July 2004.doc DAI Europe, Ltd., Key Principles for a Unitary Pay System, report submitted to the National Agency for Civil Servants (DAI, Europe: 10 July 2006). My Documents/Ops/Romania/Civil Service/Salary reform/key Principles for a Unitary Pay System.doc DAI Europe, Ltd., Options for a Sustainable Unitary Pay System for Romania, report submitted to the National Agency for Civil Servants (DAI, Europe: 28 August 2006). My Documents/Ops/Romania/Civil Service/Pay and employment/final_report Romania_pay_system v.5.0.doc

-46- Reid, Gary J., Comments on Options for a Sustainable Unitary Pay System for Romania, Revised Draft 2 mimeo (The World Bank, Bucharest, Romania: 26 July 2006). My Documents/Ops/Romania/Civil Service/Salary reform/comments on draft 2 Options for a Sustainable Unitary Pay System.doc Reid, Gary J., Comments on Options for a Sustainable Pay System for Romania, version 3.0 mimeo (The World Bank, Bucharest, Romania: August 2006). My Documents/Ops/Romania/Pay and employment/comments on pay system reform version 3.0.doc Reid, Gary J., Comments on Final Report Romania Pay System Version 4 mimeo (The World Bank, Bucharest, Romania: August 2006). My Documents/Ops/Romania/Pay and employment/comments on Final Report Romania Pay System Version 4.doc DAI Europe, Ltd., Implementation Strategy for Unitary Pay System, report submitted to the National Agency for Civil Servants (DAI, Europe: 8 November 2006). My Documents/Ops/Romania/Pay and employment/implementation_strategy_v1.0.doc Reid, Gary J., Comments on Implementation Strategy for Unitary Pay System mimeo (The World Bank, Bucharest, Romania: November 2006). My Documents/Ops/Romania/ Pay and employment/comments on Implementation Strategy for Unitary Pay System.doc Reid, Gary J., Comments on Hay Group Salary Survey Report mimeo (The World Bank, Bucharest, Romania: March 2006). My Documents/Ops/Romania/ Pay and employment/comments on Hay Group salary survey report.doc Hay Group, Consulting Services for a Comprehensive private/public survey in the Romanian Civil Service, Revised Final Report (The Hay Group: 7 April 2006). My Documents/Ops/Romania/ Pay and employment/4 th Report_EN.pdf Reid, Gary J., Romania Public Sector Wage and Wage Bill Issues mimeo (The World Bank, Bucharest, Romania: January 2006). My Documents/Ops/Romania/ Pay and employment/romania public sector wage and wage bill issues r1.doc Ramboll, Pay Report Part I: Civil Service Pay in Romania, report prepared for National Agency for Civil Servants, Romania (Ramboll, Bucharest, Romania: April 2004). Documents/Ops/Romania/Civil Service/Salary reform/pay,master 07.04.04, morning_formatted.doc Slovak Republic (virtually nothing on CSR/pay and employment) O'Dwyer, "Civilizing the State Bureaucracy: The Unfulfilled Promise of Public Administration Reform in Poland, Slovakia, and the Czech Republic (1990-2000)" (May 1, 2002). Berkeley Program in Soviet and Post-Soviet Studies. Paper 2002_01-odwy. http://repositories.cdlib.org/iseees/bps/2002_01-odwy or http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1002&context=iseees/bps Faltan, Lubomir and Vladimir Krivy, Slovakia: Changes in Public Administration, in Decentralization and Transition in the Visegrad: Poland, Hungary, the Czech Republic and Slovakia. Emil Kirchner (ed.). (New York: St. Martin.s Press: 1999): 102-131.

-47- Juraida, Stepan, and Katarina Mathernova, How to Overhaul the Labor Market: Political Economy of the Recent Czech and Slovak Reforms, Working Paper, Report No. 31433 (The World Bank, Washington, DC: March 2004). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305117&menuPK=64187510&searchMenuPK=305144&theSit epk=305117&entityid=000090341_20050131092037&searchmenupk=305144 &thesitepk=305117 A Two-Edged Sword: Competitiveness and Labor Market Polarization in the Slovak Republic, Working Paper, Report No. 36027 (The World Bank, Washington, DC: September 2005). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305117&menuPK=64187510&searchMenuPK=305144&theSit epk=305117&entityid=000090341_20060508152728&searchmenupk=305144 &thesitepk=305117 Slovak Republic Joining the EU: A Development Policy Review, Report No. 26607 (The World Bank, Washington, DC: June 2003). http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=305117&menuPK=64187510&searchMenuPK=305144&theSit epk=305117&entityid=000160016_20030826131246&searchmenupk=305144 &thesitepk=305117 largely ignores governance/csr/par issues Turkey Turkey Public Expenditure Review, Report No. 36764 (The World Bank, Washington, DC: December 2006). http://intranet.worldbank.org/servlet/main?pagepk=51082757&pipk=51082767 &thesitepk=361617&menupk=64154159&searchmenupk=1088606&thesitep K=361617&ImgPagePK=64167970&entityID=000020953_20070119103203&se archmenupk=1088606&thesitepk=361617 Turkey Public Expenditure and Institutional Review: Reforming Budget Institutions for Effective Government, Report No. 22530 (The World Bank, Washington, DC: August 2001). http://imagebank.worldbank.org/servlet/wds_ibank_servlet?pcont=details&men upk=64154159&searchmenupk=64170222&thesitepk=501889&sitename=im AGEBANK&eid=000094946_01101004022561&isNew=y Turkey Country Economic Memorandum: Promoting Sustained Growth and Convergence with the European Union, Report No. 33549-TR (The World Bank, Washington, DC: February 2006). http://www.worldbank.org.tr/wbsite/external/countries/ecaext/tu RKEYEXTN/0,,contentMDK:20835932~pagePK:141137~piPK:141127~theSiteP K:361712,00.html Turkey Country Economic Memorandum: Towards Macroeconomic Stability and Sustained Growth, Report No. 26301, 3 volumes, (The World Bank, Washington, DC: July 2003). http://intranet.worldbank.org/servlet/main?pagepk=51082757&pipk=51082767 &thesitepk=361617&menupk=64154159&searchmenupk=1088606&thesitep

-48- K=361617&ImgPagePK=64167970&entityID=000160016_20030820161646&se archmenupk=1088606&thesitepk=361617 Civil Service Reform: Selected Issues of Relevance to Turkey mimeo (The World Bank, Washington, DC: November 2006). My Documents/Ops/Turkey/OECD models.doc Omurgonulsen,Ugur; and M. Kemal Oktem, The Feasibility of an Ethical Administration in Turkey: Legal-Institutional and Cultural Pillars of Public Service Ethics (Department of Public Administration, Hacettepe University, Ankara, Turkey: 2006). My Documents/Ops/Turkey/Omurgunulsen.pdf Draft Aide Memoire: Public Expenditure Review Preparatory Mission of the World Bank (Ankara, Turkey: 12-16 December 2005). My Documents/Ops/Turkey/Draft Aide-Memoire PER mission Dec 05 rev Jan 06.doc SIGMA, Turkey: Public Service and the Administrative Framework Assessment (SIGMA, OECD, Paris: July 2004). My Documents/Ops/Turkey/SIGMA PS Turkey FINAL.doc Introducing Performance-Related Pay in Turkey: An Informal Issues Note, mimeo (The World Bank, Washington, DC: February 2005). (probably written by Brian Levy) My Documents/Ops/Turkey/perfpay2.doc ESW Concept Note Turkey s Public Sector: Towards Responsive Service Delivery mimeo (The World Bank, Washington, DC: October 2004). (probably written by Brian Levy). My Documents/Ops/Turkey/esw5turkeyconcept.doc PFPSAL II Civil Service Reform and Public Employment Final Aide Memoire, mimeo (The World Bank, Washington, DC: April 2003). My Documents/Ops/Turkey/CSR final aide-memoire April 2003 r1.doc Turkey: Labor Market Study, Report No. 33254-TR (The World Bank, Washington, DC: April 2006). http://www.worldbank.org.tr/wbsite/external/countries/ecaext/tu RKEYEXTN/0,,contentMDK:20873325~pagePK:141137~piPK:141127~theSiteP K:361712,00.html The World Bank in Turkey: 1993-2004, An IEG Country Assistance Evaluation, (The World Bank, Washington, DC: 2006). http://lnweb18.worldbank.org/oed/oeddoclib.nsf/docunidviewforjavasearch/a 57E6F8708F0CF478525715C0068D560/$file/turkey_cae.pdf Ukraine Gorodnichenko, Yuri and Klara Sabirianova Peter. Public Sector Pay and Corruption: Measuring Bribery from Micro Data, IZA Discussion Paper No. 1987, Research Paper Series No. 06-05, Institute for Study of Labor IZA, Andrew Young School of Policy Studies, Georgia State University (2006). (My Documents/PSM/Pay and employment/ssrn-id884322.pdf) Krawchenko, Bohdan, Administrative Reform in Ukraine: Setting the Agenda, Discussion Paper No. 3, (Local Government and Public Service Reform Initiative, Open Society Institute: Budapest, Hungary, 1997).

-49- http://unpan1.un.org/intradoc/groups/public/documents/untc/unpan003981.p df Davis, Mark, and Pablo Saavedra, Creating Fiscal Space for Growth: A Public Finance Review, Report No. 36671-UA (The World Bank, Washington, DC: September 2006). http://web.worldbank.org/wbsite/external/countries/ecaext/ukra INEEXTN/0,,contentMDK:21062617~pagePK:141137~piPK:141127~theSitePK: 328533,00.html Ukraine: Public Sector Reform World Bank website: http://web.worldbank.org/wbsite/external/countries/ecaext/ukra INEEXTN/0,,contentMDK:20200672~menuPK:463349~pagePK:141137~piPK:2 17854~theSitePK:328533,00.html ECA Regional Analyses Grant, Hugh, Russia Civil Service Modernisation: Pay Reform, Comparative Pay and Benefits Survey, Public and Private Sectors, draft report, (The World Bank & DFID: 2003) Grant, Hugh, Bulgaria Pay and Benefits Survey, Final Report (The World Bank: April 2002). Beblavý, Miroslav, Management of Civil Service Reform in Central Europe, in Mastering Decentralization and Public Administration Reforms in Central and Eastern Europe, edited by Gábor Péteri (Open Society Institute, Local Government and Public Service Reform Initiative, Budapest, Hungary: 2002) 56-71. http://www1.worldbank.org/publicsector/civilservice/june2004seminar/chapter3. pdf For full book, see http://lgi.osi.hu/publications/2002/98/dec-reformfront.pdf Anderson, James H.; Reid, Gary J.; and Randi S. Ryterman, Understanding Public Sector Performance in Transition Countries: An Empirical Contribution (The World Bank, Washington, DC: June 2003). http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187282&thesitepk =523679&entityID=000090341_20041213134254&searchMenuPK=64187282&t hesitepk=523679 International Public Administration Reform: Implications for the Russian Federation, Report No. 27582 (The World Bank, Washington, DC: November 2003). http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187282&thesitepk =523679&entityID=000090341_20040113101409&searchMenuPK=64187282&t hesitepk=523679 Civil Service Reform: Strengthening World Bank and IMF Collaboration, Report No. 24494 (The World Bank, Washington, DC: November 2003).

-50- http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187282&thesitepk =523679&entityID=000094946_02082304053329&searchMenuPK=64187282&t hesitepk=523679 Contracting for Public Services: Output-based Aid and Its Applications, Report No. 22928 (The World Bank, Washington, DC: August 2001). http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187282&thesitepk =523679&entityID=000094946_01101304015328&searchMenuPK=64187282&t hesitepk=523679 Modernization of the Federal Civil Service: Methodology for Functional Reviews, Working Paper No. 32699 (The World Bank, Washington, DC: 2006). http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187282&thesitepk =523679&entityID=000090341_20050622142938&searchMenuPK=64187282&t hesitepk=523679 or My Documents/PSM/Functional Reviews/Russia functional_reviews-final_eng.doc Nunberg, Barbara, Ready for Europe: Public Administration Reform and European Union Accession in Central and Eastern Europe, Report No. WTP466 (The World Bank, Washington, DC: May 2000). http://wwwwds.worldbank.org/external/default/main?pagepk=64193027&pipk=64187937& thesitepk=523679&menupk=64187510&searchmenupk=64187282&thesitepk =523679&entityID=000094946_00072405371429&searchMenuPK=64187282&t hesitepk=523679 or My Documents/Ops/EUACCESS/Published Version/Ready for Europe.zip Anderson, James H., and Cheryl W. Gray, Anticorruption in Transition 3: Who Is Succeeding and Why? (The World Bank, Washington, DC: 2006). http://siteresources.worldbank.org/inteca/resources/act3.pdf Recent Policies and Performance of the Low-Income CIS Countries: An Update of the CIS-7 Initiative, Board Report No. 28828 (The World Bank, Washington, DC: May 2004). http://wwwwds.worldbank.org/external/default/wdscontentserver/wdsp/ib/2004/05/04/00 0160016_20040504143434/Rendered/PDF/288280GLB.pdf Rutkowski, Jan, and Stefano Scarpetta, Enhancing Job Opportunities in Eastern Europe and the Former Soviet Union, Europe and Central Asia Region (The World Bank, Washington, DC: 2005). http://siteresources.worldbank.org/inteca/resources/laborstudy05- fullreport.pdf Brown, David J., and John S. Earle, The Microeconomics of Creating Productive Jobs: A Synthesis of Firm-Level Studies in Transition Economies, Policy Research Working Paper, Report No. WPS3886 (The World Bank, Washington, DC: April 2006).

-51- http://web.worldbank.org/external/default/main?pagepk=51187349&pipk=5118 9435&theSitePK=328533&menuPK=64187510&searchMenuPK=328561&theSit epk=328533&entityid=000016406_20060414124201&searchmenupk=328561 &thesitepk=328533 Lin, Justin Yifu and Mingzing Liu, Development Strategy, Viability and Challenges of Development in Lagging Regions paper presented at the 15 th Annual Bank Conference on Development Economics (ABCDE), 2003 (The World Bank, Washington, DC: May 2003). (Findings: countries that favored Comparative Advantage Denying (CAD) strategies developed more slowly than countries that favored strategies built around introducing greater flexibility in labor markets, i.e., that favored labor-intense industries i.e., the sorts of industries for which lagging countries typically have a greater comparative advantage.) http://siteresources.worldbank.org/intbangalore2003/resources/lin.pdf General HRM Literature Reid, Gary J. and Graham Scott, Public Sector Human Resource Management: Experience in Latin America and the Caribbean and Strategies for Reform, Green Cover Report No. 12839, Public Sector Management Division, Technical Department, Latin America and the Caribbean Region (World Bank, Washington, DC: March 14, 1994). C3, Review of Civil Service Minimum Wage and SES Options, Final Report to the Ministry of Finance, Government of Sierra Leone (May 2006). CoEN, Design of a Comprehensive Pay and Grading Reform Strategy for the Government of Sierra Leone, Modified Final Report prepared for the Government Reform Secretariat, Government of Sierra Leone (May 2004). David I. Levine and Laura D Andrea Tyson, Participation, Productivity, and the Firm s Environment, in Paying for Productivity, edited by Alan Blinder (Washington, D.C.: Brookings Institution: 1990). Appelbaum, Eileen, and Rosemary Batt, The New American Workplace: Transforming Work Systems in the United States (ILR Press Books, Cornell University: 1994). Akerlof, George, and Rachel Kranton, Identity and the Economics of Organizations, Journal of Economic Perspectives, 19(1) (2005): 9-32. Wilson, James Q., Bureaucracy: What Government Agencies Do and Why They Do It (Basic Books: 1989). Kaufman, Herbert, The Forest Ranger: A Study in Administrative Behavior (Resources for the Future, Washington, DD: 1993). Tendler, Judith, Good Government in the Tropics, (The Johns Hopkins University Press, Baltimore, MD: 1997). Simon, Herbert A., Organizations and Markets, Journal of Economic Perspectives, Vol. 5, No. 2 (Spring 1991): 25-44.

-52- Gary J. Reid C:\Documents and Settings\wb51420\My Documents\Ops\ECSPE\Policy papers\regional Fiscal Study\Public Employment and Pay Issues in ECA Countries.doc 10/25/2006 4:50:00 PM