Wednesday, 28 March 2012

Bin-men and the law of unintended consequences

The news that public sector wages are on average 8% higher than private sector wages has predictably been taken as evidence that the public sector is guilty of feather-bedding. This in turn is seen as further justification for the Tories' plan to introduce regional pay and generally cut public service costs.

Making comparisons at a sectoral level is pretty stupid, as the scope and mix of roles is not the same. Comparing the UK public sector with the French public sector is meaningful, as is comparing an accountant in the public sector with one in the private sector. Even the CBI spotted that comparisons at an aggregate level are not particularly revealing, though they nonetheless interpreted the headline as a justification for "putting pay decisions into the hands of individual employers at the local level".

The TUC point out that differences in skill levels and age (both higher in the public sector) skew the comparison, and that technicalities such as the omission of some private sector bonuses make the data incomplete. It should also be pointed out that the private sector data covers employee wages and thus excludes the self-employed and personal services companies. It should also be noted that gender differentials (i.e. women getting paid less than men) tend to be smaller in the public sector.

Clearly we're dealing with apples and oranges here, however the report from the Office of National Statistics that prompted all this does produce something of real value. This notes that the gap between headline pay rates has grown over the last decade in large part due to outsourcing: "The public sector is made up of a higher proportion of higher skilled jobs – widening over the last decade as lower skilled jobs have been outsourced from the public to the private sector". This is backed up by a separate IDS analysis from 2011.

What this means is that you can expect the trend of an ever widening gap between the public and private sectors to continue, despite the best efforts of government. The paradox of public service privatisation is that it increases the average sector wage as the rump of public servants are increasingly clustered at the top of the scale. You outsource bin-men and dinner ladies first and senior officers last. Come the day that local council employees are reduced to a chief executive and her PA, their average wage will be comparable with the banking sector.

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