From the TUC

Local and regional public sector pay: the argument weakens

17 Jul 2012, by Guest in Economics

A report from the new economics foundation (nef) for the TUC this week aimed to provide the first rigorous economic impact analysis of the Treasury’s proposals to move towards market facing pay in the public sector.

The Centre for Local Economic Strategies (CLES) supported this work with a series of interviews with businesses and business representatives, the aim being to develop an understanding of ‘on the ground’ perceptions of this issue given that the government has placed so much emphasis on the way public sector pay affects the private sector. Key lines of enquiry included exploring attitudes towards so-called pay premiums, whether public sector pay ‘crowding out’ the private sector was an issue, and perceptions around the economic impacts of local pay.  In short what we found very much supports nef’s findings.

Our starting point was around the differences between public and private sector pay – is public sector pay really a major issue for private sector employers and does it crowd out the private sector?  Like nef, we found the evidence to support this assertion was extremely limited.  The people we interviewed said that in the past members of private sector membership organisations have not raised it as an issue.

One interviewee said:
“In our business we have never really come across this crowding out issue. It does not stack up”

and another commented:
“It’s not a critical issue and I don’t think it ever has been really… the public sector is not even in the market for sizable numbers of new recruits anyway”.

In contrast, lack of demand in the economy was consistently cited throughout our consultation as the reason the private sector has struggled to grow.  Private sector growth was depressed in many areas in the decade leading up to the recession, particularly in the North East and West Midlands – employment actually fell in the latter. So there are specific structural issues that such places face which require focused interventions, including on issues such as skills gaps in local labour markets.

“It’s the lack of demand in the market that is affecting businesses like us and policy to stimulate the private sector needs to be based around demand more than anything”

“It’s just not well thought-through – instead we need to be providing reasons for the private sector to invest, which is about improving confidence”

Our interviewees also said that the proposals would hit businesses in areas that rely on spending by public sector employees as an important part of the economy.

“There are lots of businesses feeling the bite as public sector employment cuts are impacting local demand. I think this could make it worse”

“It could hit a lot of people’s household finances and have negative consequences….hurting local economies…. What will happen in the North East, Northern Ireland? These consequences have not been thought through”

The sum of all of this of course is the impact on people and quality of life. Most of those with whom we consulted expressed the opinion that these proposals do not seem fair, and it should not be pursued without a thorough assessment of the outcomes. One of the respondents summed it up well when they commented:

“the public sector is not a small business and should not be run like one”,

and another said

“It will hurt people’s quality of life in the long run and that does not seem fair”.

GUEST POST: Adrian Nolan is a Senior Policy Consultant at the Centre for Local Economic Strategies (CLES).  With extensive experience in the field of economic development, he leads CLES’ work around developing resilient places and economic growth.