Are public sector workers really getting a raw deal on pay?
Who is facing the biggest squeeze – public or private sector workers? The question arises today in particular because of the mass strikes from state workers over their remuneration.
Their complaint is that they have received unfair pay over the past few years – most notably because there is a 1%-a-year pay cap in place for public sector workers.
Now, there is no doubt that many workers are facing a terrific squeeze. When your income is being outpaced by inflation it means your spending power is being eroded, as each pound you’re paid goes less and less far.
However, when one examines the numbers, it is not immediately obvious that public sector workers have had a worse deal on pay than their private sector counterparts. It’s true that since 2010 the average public sector worker has seen a smaller increase in their pay (7%) than the private sector (8%). And when you ignore the employees in nationalised banks (such as RBS and Lloyds) who are included in that public sector total, the real figure is actually lower: about 5.9%.
But choose another time period and the result is very different. Look back since 2012 (when the 1% public sector pay cap came in) and public sector workers have seen average annual increases of 1.3%, compared with 0.9% in the private sector. Since 2007, public sector pay has risen by a total of almost 18%, compared with 13% in the private sector.
Nor is it clear that the overall level of pay is worse in the public sector. In fact, in 2007 the average public sector pay packet was, according to official figures, considerably smaller than the private sector (£21,940 vs £22,243). But look at the most recent comparable period and average public sector wages were higher (£25,424 vs £24,600).
But while the public sector has fared comparably better on wages, it has done considerably worse in terms of employment levels. Since 2007 employment is down nearly 6% in the public sector, compared with a rise of over 4% in the private.
In other words, those who have managed to keep their jobs have benefited from better pay rises than their private sector counterparts. It is one of the ironies of the recent recession that on this front at least, the private sector has behaved a lot more like the public sector of old – keeping people in their posts and not paying them as much – while the public sector has sacked hundreds of thousands of staff in quick order.
Another aspect which is more difficult to quantify is that of pensions. Public sector pensions tend to be more generous than their private sector equivalents. Drawing up a comparison is tricky, as the generosity varies from scheme to scheme, but the key point is that 90% of public sector workers have defined benefit pensions, which guarantee a certain pensionable amount on retirement, while only 6% of private sector workers do.
These pensions tend to involve far greater contributions from the employers (which, in the case of state workers, means all taxpayers) of around 10-20% on average, whereas employers in the private sector tend to pay in far less – around 6% on average.
On the flip-side, though, many public sector workers are now being asked to contribute more themselves into their pensions, so some people (firefighters in particular) are putting in much bigger chunks of their monthly salary (as much as 14%) in order to safeguard those salaries. Those are far bigger shares of a monthly pay packet than anything seen in the private sector.
So the generosity or otherwise of each side’s deal varies depending on how one looks at it. But for many public sector workers, the key thing is not any cross-sectoral comparison. It is the fact that promises and commitments on pay have now been broken.
Update (10am 11/07/14):
A few items worth reposting from Twitter:
@EdConwaySky 4% rise in priv.sector jobs doesn't look right. "Excl maj reclassifications" series MFZ2 has priv.sector up 7.5% 07Q1 to 14Q1
— Britmouse (@britmouse) July 11, 2014
@EdConwaySky Good piece. Do you know if stats adjust for composition, e.g reclassifying (FE teachers) & if lower-paid saw more job losses?
— MJT (@mjturner1975) July 10, 2014
To which the answer is no. This is a testy topic, since the mix of skills and worker types is different in different sectors.