Compensation reforms are used to alter the size and structure of pay and benefits packages for the public sector workforce and have a direct impact on the overall cost of government. The 2008 financial crisis presented a dual challenge for most OECD governments: how to restore financial sustainability while also maintaining high quality service delivery in times of rising demand. Given that employee compensation accounts for 45.6% of OECD countries’ production costs, compensations reforms have been a -common response to these challenges. Significant reforms to employees’ compensation packages can be difficult to undertake, as they often involve union negotiations and other legal and political complexities. Additionally, when compensation reductions are implemented, they can have negative repercussions on worker motivation, which can undermine productivity and efficiency.

Employment reforms alter the size and composition of the public sector workforce to ensure alignment with strategic objectives and financial sustainability. Given that a significant percentage of OECD countries’ finances are spent on their employees, employment reforms can have an impact on the overall cost of government. Between 2008 and 2013 many OECD countries undertook numerous employment reforms, often as a result of the 2008 financial crisis, in an attempt to restore financial sustainability while trying to maintain service delivery standards and meet rising demand. Large-scale employment reforms can be difficult to undertake, particularly when they involve high levels of downsizing over short periods of time. Conversely, countries that do not take an active role in controlling the size of their public services risk growing public employment to levels that are fiscally unsustainable.