There has been much discussion about the report into public sector pay that Policy Exchange published this week.
As has been extensively reported, the Daily Telegraph covered the report on their front page on Monday, stating that ‘Workers in the public sector are more than 40pc better off’.
This sparked a flurry of criticism from the unions and some commentators over the methods we used to calculate this gap. See here, here, here and here. Alastair Hatchett’s contribution to this criticism on the PF blog, Public sector pay: fact and fiction, is a good example of why the basis of their argument is wrong.
Alastair states that ‘comparisons between pay and average earnings in the public and private sector are not straightforward’. We never suggested otherwise and this is precisely why we chose to publish a range of estimates. These measures are summarised on the front page of our report, in the executive summary and in the press release. We do not favour any of the measures and clearly lay out the pros and cons of each.
However, it appears that many of our critics (including Alastair) have not read any of the summaries we produced or the report itself – as they focus only on one of our measures. To summarise: the lowest measure of the public sector pay premium takes account of compositional differences in the two workforces and uses the most up to date Labour Force Survey data. It shows an 8.8% premium – almost doubling in just two years.
As we discuss, this makes several assumptions, particularly the equivalence of age, experience and education in sectors that treat them very differently (public sector organisations frequently still pay people according to length of service and qualifications rather than productivity, which has been falling in the public sector for a decade).
Our upper estimate uses a comparison between actual incomes reported in the Annual Survey of Hours and Earnings: this shows that a typical public sector worker now receives 35% more on an hourly basis. This rises to 43% in terms of total remuneration once pensions are taken into account. We also discuss the limitations of these figures – that they do not account for compositional differences.
We suggest that both these figures have value – especially on direction of travel – and it would have been misleading to publish one without the other. We do not contend that any one measure is the ‘true’ one, instead the ‘true’ figure probably lies somewhere in the middle. The point is that on all measures that are available, there is a considerable public sector pay premium that has grown in recent years - even before we account for more generous pensions, shorter working hours and longer holidays - which will not disappear as a consequence of the pay freeze.
As well as being unfair on the private sector, of which the bottom 30% have seen pay cuts even in cash terms, we argue that this is also unfair on public sector workers who are facing redundancy. Higher wages equals more costs that makes more redundancies to reduce spending necessary.
We suggest some ways to solve this problem, protect public services and jobs: ending national pay bargaining and introducing a paybill freeze would save money and jobs while allowing flexibility for local managers and trade union officials to better reflect living costs in areas that are expensive and to reward those workers who are performing well and driving productivity. This is fair on workers in the public and private sectors.
We have been completely open over the basis of our figures and how they are calculated. They show that on a range of measures there is a public sector pay premium and that it has risen. Apart from criticising just one of the methods we used, no-one has yet disputed these two facts, or presented alternative measures that suggest we are wrong.
Our critics have focused a great deal on politics but have failed to engage us on the facts. Our challenge to them is to prove us wrong.
Matt Oakley is head of enterprise, growth and social policy at Policy Exchange and is co-author of the report, Public and private sector terms, conditions and the issue of fairness
