Is the Prime Minister right to claim that public sector pay is ‘now higher than the private sector’?
This afternoon the Prime Minister stated that:
…according to the Office for National Statistics, the average gross pay in the public sector is now higher than in the private sector
The implication is that overly generous pay justifies the pay freeze, increased pension contributions and heightened risks of redundancy that workers across the public sector are currently being asked to bear. But as I have previously argued (and TUC analysis has previously shown) to claim that pay across the public sector is outstripping private sector earnings is simply wrong. If there is a premium, then it’s only in the lowest paid occupations that public sector workers may be paid more.
The statistics that the Prime Minister is referring to appear to be from the Annual Survey of Hours and Earnings (ASHE) which shows that median gross pay in the public sector during 2010 was £22,902, compared to median gross pay of £20,575 in the private sector. But, as pay specialists IDS have recently pointed out:
ASHE data in 2010 can be used to tell a range of stories about public and private sector average earnings. For example, taking median gross hourly pay for all employees it shows average earnings 35 per cent higher in the public sector, at £13.54 an hour compared to £10.06. Taking gross annual earnings at the mean, however, ASHE shows 5 per cent higher income in the private sector, at £27,195 compared to £25,892.
Furthermore, IDS also conclude that:
While most measures in ASHE show higher average earnings in the public sector than the private, whether we look at the hourly rate for a particular worker or the total annual earnings per employee across the two sectors, a comparision is only worth making when there are meaningful comparators. The key structural differences between the two workforces mean it is questionable whether this is ever possible.
IDS then draw out a number of key points of difference between the sectors, including:
- The public sector employs a higher proportion of professionally trained staff (undertaking specialist roles in areas such as healthcare and education), meaning that a higher proportion of public sector staff are degree educated.
- The private sector contains a much wider variety of employees, with a higher ratio of unskilled workers with few qualifications at the bottom of the income distribution as well as far higher pay than the public sector at the top
They also point out that, for the 2010 ASHE figures, the inclusion of nationalised banks in the public sector pay figures has had an upward impact on public sector earnings, with 200,000 finance sector employees (the highest paid sector in the country) moving from the private to the public count.
It is these compositional differences which account for the vast majority of the pay differential between the sectors. As the IFS have concluded (and I have previously reported):
The raw differential does not take into account the fact that the skill compositions of the two sectors are markedly different: it is like using the average pay of neurosurgeons and the average pay of bartenders to conclude that neurosurgeons are overpaid!
And the jury is out on whether jobs between the private and public sectors can ever meaningfully be compared. Is the role, for example, of a private sector swimming pool attendant comparable with that of a public sector museum educational assistant? Both are within the ONS’s ‘sports and leisure assistant’ code. Similarly, is the job of a public sector headteacher the equivalent to that of a private sector dance lecturer? Again they can be found in the same occupational classification (teaching professionals). But even if it is, research suggests that any public sector premium only applies to the lowest paid jobs – and as IDS discuss it may be that these positions are those where society would prefer its workers to be better renumerated, in recognition of their specific responsibilities:
It may also be that traditionally low-paying jobs are better renumerated in public sector roles where there is greater responsibility. Cleaning in hospitals or catering in schools, for example, might attract a premium for the importance of these jobs compared to cleaning and catering in the private sector or elsewhere in the public sector.
I doubt that the Prime Minister is really of the view that low-paid public sector workers – as well as employees of the recently nationalised banks – should be paid less. And regardless of his views on how well cleaners are renumerated it does seem unhelpful to perpeturate the myth that public and private sector roles are directly comparable, and that public sector workers are doing far better than their private sector counterparts. The reality is that living standards are being squeezed across society – and creating a race to the bottom will only make things worse.