10 April 2013

By Incomes Data Services

In a report for Unison, Incomes Data Services illustrates how the idea of a public sector 'pay premium' is a myth. Karen Jennings, Assistant General Secretary of Unison, will draw from this report in her speech at our Public Sector: pay, privatisation and employment rights conference, and delegates are advised to download it here. There are still some places left at the event, which can be booked here.

Since around 2009/10, the idea of a ‘pay premium’ has been used to claim that all public sector workers earn more than all private sector workers. It has also been used to claim that all public sector workers earn more than their ‘counterparts’ in the private sector.

In reality there is no pay premium for those working in the public sector. It is not the case that all public sector workers earn more than all private sector workers. Nor is it the case that public sector workers all have counterparts in the private sector. There is no equivalent of the public sector operating in the private sector.

Previous research published by the ONS had shown that earnings’ growth in the period from 2000 to 2008 had run neck and neck between the public and private sectors, perhaps with a marginal advantage to the private sector. So the claimed emergence of a huge pay premium in favour of the public sector came as a surprise, particularly the newspaper headlines1 claiming that public sector workers were ‘more than 40 per cent better off’ than employees in the private sector.

The fact is that comparisons between earnings in the public sector and earnings in the private sector have to be done with care and precision. Like must be compared with like. It is well established that average pay in each sector reflects the different mix of jobs and skills in each sector so why would anyone compare averages and draw inappropriate conclusions? There may be a difference in the average for each sector but any difference does not establish a pay premium.

Critics of the public sector are often rather blind to the nature of pay and employment in the private sector. The private sector employs 80 per cent of all employees in the UK economy. It has the largest number of the highest paid people in the economy – in finance and business services - and the largest number of the lowest paid people – in retail, hotels, restaurants, care services and cleaning.

High salaries in the private sector are not just commanded by the top directors and senior managers in banking, finance and business services. The UK has a substantial share of higher paid people in multi-national corporations many of which are in sectors such as the airlines, aviation manufacturing, the defence industries, the car industry, chemicals and pharmaceuticals and oil and energy. In addition there are large numbers of highly paid professionals in accountancy, the law, information technology and professional engineering.

In addition to these highly paid groups, the private sector has a large number of employees in the lower paying industries, particularly in wholesaling, retail and hotels and restaurants, a sector with around 6.6 million workers, close to 23 per cent of all employees. Many of these employees work at or just above the National Minimum Wage and many work part-time.

By contrast, the public sector, with 20 per cent of all employees, has a very different occupational, skill and gender mix to that of the private sector. It has a higher proportion of professional employees, a higher proportion of graduates as a consequence, and contains a much higher proportion of women workers - around two-thirds of all public sector employees are women, with much higher proportions in the NHS, teaching and in local government.

These substantial differences in income levels and occupational characteristics mean that average pay in any one sector will reflect all the complexity of skill mix, qualification, experience, responsibility, gender and seniority in each sector. It makes it even harder to draw simple comparisons.

Furthermore, some of the earnings data in the Annual Survey of Hours and Earnings and the Labour Force Survey are not robust enough to make a detailed comparison of the public and private sectors. For instance, ASHE underestimates the impact of bonuses, other non-cash benefits and does not include the self employed, which include many of the highest private sector wage earners. Meanwhile, the LFS is self reported, often by proxy and includes many low earners in the public sector, which are in reality working for private sector contractors.

1 See http://www.telegraph.co.uk/news/politics/8501369/Workers-in-the-public-sector-are-more-than-40pc-better-off.html and http://www.telegraph.co.uk/finance/jobs/9697750/Public-sector-workers-earn-86-more-a-week-than-private-sector.html

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