By Ronin
Expenditure on public sector salaries would be close to S/100,000 million in 2026, which would mean a cumulative increase of almost four times in the last 15 years and 50% in the current constitutional period (2021-2026). In this way, the weight of the state payroll would go from 5.5% of GDP in 2011 to 7.9% in 2026 (see graph 1); almost 2 percentage points of GDP at once. This without considering several of the salary bills that would add another two additional points.
If we analyze this spending by function, it is observed that the largest increase would occur in education (+S/27,000 million), followed by health (+S/16,000 million). The participation in the state payroll of these two functions has risen to almost 60% when it represented 49% in 2011. When disaggregated by salary regimes, teachers would explain the largest increase (+S/20,000 million), followed by spending on CAS workers (+S/13,000 million).
Observing the data from the electronic payrolls, public salaries grew at a rate almost three times higher than that of employment in the sector in the last 10 years. Thus, jobs went from 1.3 million in 2015 to 1.6 million in 2025. Thus, the average monthly salary of these workers went from S/2,334 in 2015 to S/3,832 in 2025, a cumulative increase of 64%, more than double the salaries in the formal private sector, which increased by 31%. As a result, the public salary went from being 8% below the private salary in 2015 to being 15% above in 2025 (see graph 2).
Efficiency problems
Is there justification for salaries in the public sector to be higher than those in the private sector? In principle, it could be justified by the greater specialization and inherent human capital of the state worker than that of the private sector. However, the economic literature finds signs of serious efficiency problems in state remuneration spending. In fact, an IDB study from 2018, the year in which the gap was still negative, estimated that the inefficiency of public spending attributed to salaries was 0.3% of GDP.
That said, we see that it makes no sense that salaries have been raised at an accelerated rate when there is clear evidence that there have been no improvements in the civil service or in the quality of public services. Thus, according to another more recent IDB study, the quality of the civil service in Peru had regressed dramatically in the last two periods evaluated (2022 versus 2015), and is below the average for the region and our comparable peers, such as Chile and Colombia. If we take as a reference the IDB study on inefficiency in wage spending and the widening of the wage gap today, inefficient public spending could have increased significantly.
Indeed, the increase in spending in the public sector is not due to an improvement in productivity, but to legislative populism. In recent years, Congress has passed laws driven by union and political pressures, prioritizing wage increases over efficiency. Among them, the collective bargaining law, which strengthened the power of public workers to demand salary increases, and the norm that attempted to eliminate the CAS regime, whose ruling by the Constitutional Court allowed those hired under that scheme to become permanent.
State payroll without brakes
Going forward, the outlook does not seem to indicate that the upward trend in public salaries will stop, said Ronin’s chief economist, Isaac Foinquinos.
He indicated that Congress has recently approved and is about to approve various initiatives that total a cost of more than S/10,000 million, such as the extension of labor benefits to the CAS regime, the transfer of different groups of CAS workers to the private regime, and the “living card” for teachers with a minimum pension of S/3,300 to start.
Although it is laudable to seek that workers can access more labor rights, he said that these must be accompanied by measures that guarantee greater meritocracy and integrity in the public apparatus. Otherwise, greater spending on payrolls will only make the budget more rigid and inflexible, limiting the responsiveness of fiscal policy to adverse scenarios and putting the sustainability of public accounts at risk.
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