A newspaper reported that accountants in the United Kingdom earns 55% more than French, however, offset by working longer hours than any other country in Europe (Ledger 2001). This statement can bring about many questions such as
Economic Theories in Pricing the Labor Market
To evaluate the performance of the labor market, efficiency of the pricing and equity of the market system should be considered (Briggs Jr. & Marshall 1989). This is useful to be able to appreciate the quantity and quality of the labor being supplied or demanded in a certain industry including the determination how equitably the supply of labor is spread in the economy. This is important especially for the developed economies wherein population rates are decreasing. Pricing of labor can be based according to the long-run trend, cyclical movement and cross-sectional data. As the third refers to the present and more dynamic situation in the economy, the first two refers to more predictable movement of the labor market.
Further, traditional conceptual framework used to determine the price of labor is attributed to supply and demand analysis (Briggs Jr. & Marshall 1989). Supply of labor is affected by variables such as wage rate, household incomes, size of the households, and age structure of the population. On the other hand, the demand side includes the wage rate, industrial pattern of demand for goods and services, the capital stock of the economy, and the general level of prices. However, these variables are acknowledged to be insufficient for analyzing the labor market of an economy.
For our purposes, in explaining the wages differential, these variables and our own theories including the characteristics of the perfect labor market will aid us in explaining a certain phenomenon. The ideal labor market includes characteristics such as workers and employers have full information of the market, they wanted to maximize their welfare and profits, workers are mobile, employers are not in deciding collusively, and labor is organized while each have their own decision (Briggs Jr. & Marshall 1989). These features fit perfectly to push the wage towards equilibrium whenever there is a short-term demand and supply fluctuations.
Salary Comparison between Private and Public Accountants
A once private accountant who earned £30,000 for a five-year experience can find public career both rewarding and fulfilling (Guardian Unlimited). In working to public agencies, he could earn £30,000-£35,000 where his experience can be applied although public hospitals could be a challenging choice as it requires experience in related industry of healthcare. The latter undermines the five-year experience of the private accountant and refuses to hand him an industry compensation of £31,000-£40,000. Further, charity organizations' offer is considered in the standard level which refuted its volunteerism concept rather requires applicants with challenging qualifications in order to get £28,000-£33,000. Government agencies get accountants from the pool of civil service professionals but are also eager for the services of the private individuals in which present salary will be the ultimate basis for compensation. In the House of Lords, salary ranges from £28,922-£36,199 are handed to the 450 staff in the accounting positions that are described as highly competitive.
In this data, it is emphasized that a private experience would not result to higher public salary. In the case of a hospital institution, years of experience cannot be regarded a superior practice due to the presence of National Health Standards requirements which is different to commercial ones. It also indicated that discrepancies between accountants in both sector with medium experience (5 years) overlaps wherein public compensation can be higher than private ones. Also, charity agencies which is cited earlier having the lowest industry salary is shown here as competitive that could even surpassed the minimum compensation for the accountants for the House of Lords.
Based on the report of Association of Chartered Certified Accountants (ACCA), it is found that a significant increase in salary depends whether one is working in London and nearby provinces or Scotland and Ireland wherein discrepancies range from 5000-10000 (Hays ACCA Salary Guide). In the accounting industry, the increased salary of accountants is primarily caused by more diverse and demanding job for the applicants due to tighter government requirements in financial statements of public and private companies as growing concern in Enron scandal.
In public sector including those companies competing with Big 4 (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers), employers hire candidates who are more skilled and experienced (Hays ACCA Salary Guide). Their recruitment campaign against the Big 4 is their less complex work environment. For a public accountant with trainee and partial-qualified skills, salary amounts between 15000-21000 pounds depending on the presence and three-tier level of ACCA accreditation. ACCA is one of the recognized and largest professional organizations of international accountants. For accounting technicians, salary is pegged within 12000-18000 depending on the level of AAT/CAT licenses including practical experience. Being a qualified senior auditor means greater remuneration that can range from 26000-29000 depending if the public company is counted to the top 20 firms or just within the local or regional operations. Lastly, qualified accountant with PQE can receive from 31000-40000 depending if they are working as Audit managers in top 20 firms or just within the local or regional operations.
In private sector, some employees wanted a junior accountant to save cost (Hays ACCA Salary Guide). However, they are willing to overpay accountants just to keep them because of supply shortage. Salary level for private trainee receives 16000-26000; technicians get 14000-19000; newly qualified receives approximately 33000 and the senior qualified accountants are subdivided as follows: financial analyst and management accountant 35000, finance manager 40000, finance and group controller 65000, directorial 80000-100000 these exclude benefits and other perks like car allowance, health, bonuses, etc.
As seen, the salary discrepancy between the two sectors is quite close revolving at 5000 pounds. However, as the position rises up to the level of directorial ship and audit manager the discrepancy becomes heterogeneous and far spread reaching difference of 50000 pounds. This is aggravated by the perks being given to these top-caliber senior accountants. The inequality can be justified by private industry variables such as sales and net income due to operations. In public industries, accountants' pay are relatively non-flexible than their private counterparts because the performance of the latter and the incentives they receive is attributable to its profit-based goals wherein the public firms are biased to the welfare of the society. However, it can be argued that public firms provide more stable jobs because their expenditures are guaranteed by the government unlike private firms who operates in entirely profit-oriented stance that based their downsizing and expansion schemes through financial outcomes and business strategies.
In a similar study, Reed Learning Institution found that job satisfaction, not monetary rewards, is the primary reason why accountants choose to work in the public and private-practice industries (Reeds Accountancy). Further, nine percent of public organizations implemented performance-based scheme for accounting staffs while private-practice counterparts increase the pay indefinitely more than the former including the plan to increase salary within twelve months. Both of the sector placed high significance in providing pension schemes. In the public sector, those in charity are paid the lowest while public finance workers in uniform services are paid the highest. Only 10% of the public sector respondents thought that their salaries have increased which are the primarily case of their superiors and directors. On the other hand, private sector that belonged in the top firms has the biggest recruitment problems. On top of this, most of them admitted the ambiguous changes in economic environment of the country.
Thinking of job satisfaction as number one motivation for most accountants at both sectors, it is likely that the labor supply for this industry belonged to content or wealthy families. The private sector employers are more anxious to obtain a secured level of the labor supply partly because they wanted competitive employees to give their respective firms human capital advantage against rivals. On the other hand, the public sector demands more efficiency on the part of their employees to avoid continuous increase in public expenditures that pressure taxes to rise giving off the primary objective to satisfy the community. For both of the sector, health of employees are prioritized that can imply employer's cost leveraging to provide attractive perks to applicants since health problems or injuries would unlikely appear in short-term and relatively non-hazardous employment like office work. Of course, a public charity needs volunteers with sub-optimal compensation that could supply them a pool of relatively older accountants who are more mature and already satisfied on their careers. The perception of this sector of wage increase exclusively attached to directors confirmed that private and public senior-level accountants, as they go up to the ladder of the organization, minimize their discrepancies that can even go co-equal. The looming private sector recruitment problems and ambiguous outlook on the economy can justify how they react to supply shortage of accountants by giving relatively more attractive salaries compared to public counterparts. The former wanted the best while the latter wanted good but service-oriented.
Salary in the Accounting Industry
For an accountant in
Industry accountants compared to the two sectors above are situated in a position to complete industry requirements regardless of salary. It also gives a clearer hint that auditing and specialized accounting could give the trainees the partial control on salaries that could undermine the private indication of higher pay. In addition, the accounting industry showed that this private upper hand in salary over the public is offset by working long hours and challenging environment. The industry suggests that the public requires patient and consistent employees while private accountants should be flexible and enthusiastic to be kept as a valuable asset of the firm that in effect results to higher pay in the future.
In Reed's industry report, most of the respondents have ambiguous forecast in the performance of the national economy, have problems in recruiting staffs and increase accountant's wages within 12 months just like the private-practice survey (Reeds Accountancy). Those who are in the private sector thought that their salary is higher than public counterparts. It is also discovered that junior level accountants both in private and public sector have comparable salaries unlike the private directorial level that posted 50% more than public counterparts. Further, 83% of the organizations offered pension plans while most of them offered enhanced maternity and paternity leaves.
This survey possibly got the important implication in the labor market that demand for private accountants are plenty than the public because the findings reflects most of those collected in the private. This data are ambiguous outlook on the economy, increase in salary within 12 months and pension plan significance as benefit. It is further implied that supply of labor is centered in the private sector due to the perceived upper hand in salary compared to private. Also, the discrepancy between private and public accountants' salary becomes more obvious when looking in the whole industry wherein discrepancy broadens as accountants go up to the ladder is enforced.
In the same year as of the survey of Reed, Accountancy Age surveyed the accounting industry and posted the following data on earning according to the position: financial director 60000, financial controller 48000, partner 61000, accountant 34000, audit 35000, credit controller 23000, payroll 30000, tax 47000, account assistant 20000, account manager 30000, finance manager 43000, director 56000, management accountant 36000, manager/ assistant 53000 (Accountancy Age). Also, it is found that the basic salary for accountants is 44850, that there is gender inequality on wages, pension plan is a benefit package that primarily motivates accountants while flexible time option runs second, four years is the average time accountants spent in their jobs, equitable right salary is the most demanded factor in the workplace by accountants, and finance directors continued to work longer hours than regular staffs. The salary on position levels also varied when the individual passed the Chartered Institute of Management Accountants (CIMA) or Institute of Chartered Accountants in England and Whales (ICAEW) with discrepancies between 5000-10000 pounds in each position wherein having the license of the latter connotes higher pay as it is the premier body for chartered accountants and auditors in the United Kingdom.
This data showed that the industry, according to job description, relatively pays lower against the public and private sector. It may be in the same direction with junior accountants in the public sector, but as the job description becomes more demanding and challenging, both sectors surpassed the average industry salary in significant amounts. Although, the average salary in the industry posted far higher than the 30000 pounds by a 5-year private accountant as an example above. This could suggest that the labor supply should search more patiently in the labor demand to figure out the best price. Additional findings also transpired in the survey of the industry like gender inequality and the importance of flexible time option not suggested in both private and public sectors. Also, industry directors are found to work longer hours than the two sectors that concretized the rationale behind their almost co-equal pay in both sectors. As the comparison between the two sectors imposed accountants to pass examinations, industry accountants are told specifically to pass the better known organizational examinations that can affect the quality of their abilities not just plain wit.
Salary in the
The Sarbanes-Oxley Act provided pressure for accounting firms to pay larger and get the best accountants to adhere in these strict legal requirements and satisfy their customers. The creation of the legal provision is primarily due to Enron scandal (Manila Bulletin). As a result, salaries of both accounting graduates and experienced personnel increased by 35% over the last three years which is comparatively radical than the 3.7% wage increase in the US economy as a whole. Managers wanted to have a secure number of well-schooled and talented accountants due to the alarm on the firm of Arthur Andersen that was ensnared in Enron scandal. Stress and burn-out due to long hours of work contributes to accountant shortage that leads to quitting. The shortage of accounting practitioners is aggravated by declining number of accounting graduates from 1994 to 2004 wherein the pointed cause is the five years slack period in accountant professional cycle due to study before getting a chance to get qualifying Certified Public Accountant (CPA) board exam.
Comparing the wages of accounting industry of US and
Upon evaluation of the income data of the
In the public side, CPA gained highest income when working in the Federal Government and public hospital averaging at 70000 while local CPA are paid with 40000. When working on the private company or being self-employed, 50000 is expected to be received which is considered a little higher than local accountants but lower on salaries of accountants working in the Federal Government and hospitals. Being in the entry level, one is expected to receive salary between 20000 and 40000 whereas being a contractual worker posted the most significant salary at 52000 partly because of the project-based, one-time and non-continuous nature of work. In this running, one would expect the accountant working on a compressed schedule.
As with the
In a similar survey, Robert Half Salary Guide reported that public accounting salaries deviates according to the firm size; namely, small firm 35000-47000 while large firm 42000-60000 wherein an applicant should have at least one- to three-year experience in both (AICPA). For the private accounting, the same experience will provide accountants with 34000-43000 and 39000-50000 both for small and large firms respectively. For accountants who have a graduate or CPA license, additional 10% increase will be awarded in their basic pay. In the academic sector, salaries could reach as much as 90000-120000 depending whether the faculty is fulltime or has post-graduate degrees.
In this survey, the fact that US and
Wage differential among
Putting this in an economic lens, the most important variable that causes excessive deviations for junior-level discrepancy in the
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