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Charles Levy
Senior Economist
Charles  Levy

Comparing apples and oranges – public and private labour markets

Authors: Charles Levy Charles Levy

09 May 2011

Looking across our public and private sectors, it's all too easy to get alarmed by some of the headline numbers. Last week’s report from Policy Exchange appears to have fallen foul of this trap – they highlight that the median hourly pay in the public sector is 35% higher than that in the private, and that this gap increased between 2009 and 2010.

But these statistics don’t match up like with like. Compared to the private sector, public sector employees are better educated, more concentrated in professional occupations, and the work of public sector workers is on average more complex and more reliant on knowledge intensive tasks. And since the public sector has a smaller share of low-wage jobs than the rest of the economy, we should expect public sector workers to be paid more.

Over the past year, public sector workers have on average seen stronger wage increases than those in the private sector, but this isn’t necessarily unfair. We know that in the current labour market those struggling the most are individuals with the weakest qualifications and the least experience. Since this group is under-represented in the public sector, we would expect to see the average public sector worker doing a bit better than their private sector equivalent. It is also hard to describe the average annual increase in weekly public sector earnings (reported by the ONS at approximately 2.5 per cent for the past six months) as “out of control”, particularly when much of this is driven by many multi-year pay agreements, and the Consumer Price Index is still running at 4.0 per cent.

The central challenge for the public sector must be to support a lasting and sustainable recovery capable of driving income growth across the economy. While an element of this may depend on reducing the burden of public spending through pay restraint, we think that many of the important other ways in which public services connect to the economy should be receiving much greater attention. As part of our Knowledge Economy research programme we’ve been looking at how well public services are supporting innovation in our economy. We’ll be publishing on this topic later this month, but we’re concerned that in the context of cost reductions and against a background of major reform in a number of areas, the public sector is being distracted from its crucial role within our innovation ecosystem.

Comments in Chronological Order (Total 2 Comments)

Larry Sportello

09 May 2011 3:27PM

Not to mention that the authors don't know the difference between Will Hutton and Lord Hutton. According to the authors of the report, Lord Hutton made "several useful" recommendations about pensions in his "Fair Pay" report.

However, this error pales in comparison to the recommendation to increase employee contributions to public sector pensions by 7.5% - which would effectively cause every worker to opt-out of these schemes, removing key Treasury cashflow and crippling the (funded) Local Government Pension Scheme which is a key investor in UK equities.

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01 Sep 2011 7:54AM

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