From the TUC

More about public versus private sector pay

01 Dec 2009, by in Labour market, Pensions & Investment, Public services

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%
Higher educ 10.1% 8.3% -1.8% 17.3% 14.1% -3.1%
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%
Other qualifications 14.7% 13.1% -1.5% 11.6% 7.7% -3.9%
No qualification 12.6% 8.4% -4.2% 8.6% 4.0% -4.6%

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%
Higher educ 41.1%
GCE A Level or equiv 22.4%
GCSE grades A-C or equiv 22.8%
Other qualifications 19.2%
No qualification 16.3%

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%
Higher educ £13.80 £13.00 -6.2%
GCE A Level or equiv £10.90 £10.90 0.0%
GCSE grades A-C or equiv £9.70 £10.20 4.9%
Other qualifications £9.20 £9.80 6.1%
No qualification £7.80 £8.10 3.7%

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.

8 Responses to More about public versus private sector pay

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    Dec 1st 2009, 4:11 pm

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    Dec 2nd 2009, 8:08 am

    […] More about public versus private sector pay | ToUChstone blog: A public policy blog from the TUC. […]

  3. Tim Worstall
    Dec 2nd 2009, 12:13 pm

    “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 a member of that small state brigade might I point out the real point of interest here.

    When people look at the gender pay gap (you, Fawcett, EHRC etc, etc) we are told that the simple existence of a pay gap proves that there is discrimination we must do something about. When people like me point out that the male and female worforces are quite different, with different levels of human capital etc, we’re told this isn’t relevant.

    When we look at public v. private sector workers and note that there is a pay gap which is obviously an example of preferential treatment (or discrimination for the hard core) we’re told that this is irrelevant because the human capital attributes of the public and private sector workforces are quite different and this must be taken into account.

    Which is of course what enrages: the cake and eat it syndrome.

    Either differences in human capital are important when we compare differences in wages or they are not. As it happens I tend to think that they are, thus that your analysis above is to some extent reasonable (although there’s a lot more than just pay rates to consider, like pensions, hours of work, workload, job security, holiday pay etc) but we do have to then apply exactly the same analytical methods to hte gender pay gap.

    Which, in politics (despite what academics have been able to show about the contribution of human capital differences to it) we don’t.

  4. More about public versus private sector pay | called2account
    Dec 2nd 2009, 3:20 pm

    […] More about public versus private sector pay | ToUChstone blog: A public policy blog from the TUC. […]

  5. Nigel Stanley

    Nigel Stanley
    Dec 2nd 2009, 5:07 pm

    Tim

    Some agreements and some disagreements.

    I’m not sure that your gender analogy works very well. People don’t have the choice of being men or women, they do (to some extent) about whether to work in the public or private sector.

    You seem to suggest that those of us concerned about the gender pay gap think it is all due to women doing the same job being paid less than a man doing the same job. I don’t know of anyone who thinks that it is as simple as that.

    Here are some other factors:
    1) jobs dominated by women (such as those involved in caring) are less valued.
    2) women miss out on promotion and career development because they take career breaks.
    3) women bear an unfair share of domestic labour and caring responsibilities and therefore can’t make the extra commitment required to get promotion
    4) part time jobs (dominated by women) are not properly valued.
    5) girls are not encouraged to have the same aspirations and career goals as boys.

    But I agree that differences in human capital are important, and that those of us who want to see greater gender equality need to consider issues other than direct discrimination, just as those who try to explain discrimination away by human capital explanations need to accept that there is both direct and indirect discrimination in the labour market.

    Read the Women and Work Commission report for a view endorsed by union and employer reps: http://www.equalities.gov.uk/pdf/Shaping%20a%20Fairer%20Future%20report.pdf

    The gender pay gap is narrower in the public sector as Frank Eich’s paper shows, and I’m all for analysing why this is.

    I accept that pay is not the only issue when comparing public and private sectors, but I did say that in my original post. My aim was not to draw any particular policy conclusions, but simply ask what lay behind the higher mean pay in the public sector.

    As I’ve said before I prefer the narrower differentials in the public sector, recent outrage about those few public servants who earn very big salaries boil down to the public sector trying to ape the private sector.

  6. Tim Worstall
    Dec 2nd 2009, 5:44 pm

    “I don’t know of anyone who thinks that it is as simple as that.”

    I agree, but I know of an awful lot of people in the political arena who are willing to give the impression that this is so. Harriet Harman, the EHRC and various others like Katherine Rake and Polly Toynbee come to mind.

    That whole nonsense about the “part time pay gap” being 37% for example, when in fact women working part time get paid slightly more than men working part time.

    The whole nonsense over the TUC (in at least one report) using the mean pay gap when the ONS keeps pointing out that we should all be using the median….in fact, in one TUC report (actually, Scottish TUC I think) there was a footnote pointing this out, but still the wrong average was used.

    1) I disagree with simply because in markets prices are set by supply and demand. If there are more women willing to work for less money well, so be it.

    2) Sure, something I’ve been arguing a long time. Which leads of course to the point that extending maternity leave will lead to an increase in the gender pay gap….something seemingly that the TUC hasn’t quite grasped yet.

    3) Sure…and perhaps this is just the division of labour within a household. Maybe this is even what people choose themselves.

    4) See 1). The Women at Work Commission for example pointed out that it costs more to employ part timers and job sharers than it does full timers. Higher employment costs will necessarily lead to lower wages.

    5) Certainly was true. Not so sure now. The majority of those entering university are now female, the majority of those graduating are, the majority of entrants into the traditional professions (military excepted) are female. It’s entirely consistent with the evidence available to us that this part of the problem has already been solved: we simply have to wait a generation.

    It’s also true that 2) and 3) speak to the same human capital problem….

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    […] this is to compare pay by educational qualification. You can read my post that does this here but to summarise […]

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