On Monday the Daily Telegraph front page led with: ‘Public sector workers receive more than 40 per cent extra in pay and pensions than their counterparts in private sector companies, as state wages spiral “hugely out of control”, a report finds today.’
The report, published by Policy Exchange, purports to prove this strange conclusion and adds that public sector workers have increased their pay advantage over the course of the recession.
Much of the analysis flies in the face of the real world experienced by most public sector employees who currently face two years of pay freezes and for whom pay rises last year were either very modest or were non-existent (as in local government).
Comparisons between pay and average earnings in the public and private sector are not straightforward and it appears that the Policy Exchange people have looked at official earnings statistics with a rather naïve approach.
First of all the workforces are not comparable. Employees in the public and private sectors perform hugely different roles. Their gender make up is quite different as around two-thirds of the public sector workforce are women. The skill mix is quite different and a larger proportion of public service employees require professional qualifications (for example, doctors, nurses, teachers, social workers).
Neither the private sector nor the public sector is homogenous. The private sector has the largest number of the highest-paid employees (in finance and business services) and the largest number of the lowest-paid (in retailing, hotels and restaurants and cleaning). Many of the lowest-paid roles in the public sector have been outsourced to the private sector, which lowers average pay in the private sector while simultaneously raising average pay in the public sector.
A clue to the naivety of the research lies in the word counterparts. Policy Exchange say they have looked at 295 job categories where the 2009 Annual Survey of Hours and Earnings has both public and private sector workers, with 192 of these showing a public sector lead. That may be the case but it still does not mean we are looking at ‘counterparts’ in each sector.
We do not have a private sector police force, nor a private sector fire service. There are half a million nurses in the NHS but nothing like that in the private sector. If we look at teachers, there are half a million or so in the public sector and a much smaller number in the private sector, and the private sector includes Eton at one end and language schools above retail shops along Oxford Street. In most cases they are not ‘counterparts’. They may be performing quite different roles and have quite different levels of responsibility.
Taken over the longer term, research by the Office for National Statistics on earnings growth has shown close similarity between the public and private sectors over the period 2000 to 2008. What happens in recessions is that earnings in the private sector dip behind the public sector and then accelerate ahead of the public sector as the recovery kicks in. The current two-year pay freeze in the public sector will mean earnings growth in the public sector will drop back to around 1 per cent, while earnings growth in the bulk of the private sector returns to around 3 per cent this year.
Average weekly earnings in the finance and business service sector grew by 4.5 per cent in the year to February 2011, and this sector of the economy has almost the same size of workforce as the public sector. Average weekly earnings in the finance and business services sector were £596 in February while the figure for the public sector was £465, not that too much should be made of these comparisons as these workforces are quite different.
Alastair Hatchett is head of pay and HR services at Incomes Data Services. This post first appeared on IDS eye
