More about public versus private sector pay
Critics of the public sector are very fond of saying that average pay is higher in the public sector than in the private sector. They like to imply that this there is something new about this, and that this supports their view that public sector staff are especially privileged.
But our new analysis shows that it is much more complicated than that and the truth is that pay is less unequal in the public sector – those at the bottom get a bit more and those at the top get less than their equivalents in the private sector.
The obvious retort to the small-state brigade when they harp on about average pay is that the private and public sector workforces are different. As the private sector employs more unskilled workers on the minimum wage than the public sector, and the public sector has a high proportion of professional workers (such as teachers and doctors) it is not surprising that average pay is higher in the public sector.
Additionally the composition of sectors can change over time. If the public sector transfers lots of low paid jobs to the private sector through contracting out, average pay in the public sector will increase even if no-one gets a pay rise.
What these public sector critics want us to think is that people doing the same job get a better deal if they do it in the public sector than the private sector. But comparing either mean or median pay between the two sectors tells us zilch about that.
In a previous post I showed that there was nothing new about a higher median wage in the public sector. I was able to get figures going back to 1984 from ASHE and the public sector full-time median wage has been higher every year since then.
But while there is not a steady increase in the gap each year by any means (and indeed it has fallen in recent years with some tough public sector pay rounds) it is true that the gap is now bigger than it used to be.
There is also evidence to suggest that pay in the public sector is more compressed than in the private sector. The better paid tend to get less than they would in the private sector, while the low paid do slightly better in the public sector.
However not all jobs in one sector have straightforward equivalents in the other – or there are other problems with making direct comparisons, for example private schools are not really equivalent to state schools and there are far fewer of them.
But what we can do is compare the pay of people with similar levels of educational qualification as the government’s Labour Force Survey asks people about where they work, what they are paid and their qualifications. (The key difference with ASHE is that the LFS asks workers about their pay and conditions, while ASHE asks employers.)
This also allows us to see how the make up of the workforce has changed over time too as it can show us for example the change in the share of the public sector workforce whose highest qualification is at A-level standard.
Unfortunately the figures don’t go back as far as ASHE (and its predecessors), so I asked my colleague Paul Sellers – our LFS stats whizz – to dig out the most recent figures and those of ten years ago.
Let’s first look at the composition of the workforce in the two sectors. As the table shows there has been a big growth in employment of graduates in the public sector over the last ten years – much bigger than in the public sector. Even in 1998 the public sector was already employing more graduates. Given that graduates are paid more than others, this in itself would tend to make average public sector pay higher. There are quite significant decreases in the proportion of public sector staff with higher education short of a degree (which we will call diplomas for simplicity) and those with other qualifications.
|% of private sector workforce 1998||% of private sector workforce 2009||private sector change||% of public sector workforce 1998||% of public sector workforce 2009||public sector change|
|Degree or equivalent||15.3%||20.2%||5.0%||24.8%||38.5%||13.7%|
|GCE A Level or equiv||23.6%||24.7%||1.1%||18.1%||17.5%||-0.6%|
|GCSE grades A-C or equiv||22.9%||24.3%||1.4%||19.1%||17.6%||-1.4%|
Another way of looking at this is to see what proportion of each qualifications groups works in the public sector. The next table shows that the better qualified you are the more likely you are to work in the public sector (other than a tiny blip between A-level and GCSEs.)
|2009 proportion working in public sector|
|Degree or equivalent||43.7%|
|GCE A Level or equiv||22.4%|
|GCSE grades A-C or equiv||22.8%|
What about pay?
We can also look at pay by qualification. This indeed shows that public sector pay is compressed compared to the private sector. Graduates get paid less in the public sector than in the private sector, while those without qualifications earn more – and, conveniently for my argument, those in the middle with A-levels earn the same. Of course pay is only one part of the reward package. This is also a snapshot. Public sector pay does not rise smoothly over time as it sometimes gets held back before then catching up.
|2009 mean private hourly pay||2009 mean public hourly pay||public compared to private|
|Degree or equivalent||£18.20||£17.60||-3.4%|
|GCE A Level or equiv||£10.90||£10.90||0.0%|
|GCSE grades A-C or equiv||£9.70||£10.20||4.9%|
But these figures confirm that something that is perhaps a bit complicated for some newspapers. Graduates get paid less in the public sector than the private sector, but mean pay is higher in the public sector because it employs more graduates.
Update : There’s a very thorough analysis on private v public sector pay along similar lines in a paper (pdf here) written by Dr Frank Eich the senior economist of the Pension Corporation. It also looks at regional and gender effects. He confirms that public sector pay is more compressed than private sector pay between rich and poor, but also has a narrower gap between men and women, and between rich regions and poor regions.
I’m not sure he and I would draw quite the same conclusions, but Frank’s paper will be of interest to anyone wanting to defend public sector pensions. And it’s interesting to see such research from a private sector pensions company.