An end to centralised wage bargaining?

February 01, 2010 1:48 PM

CentreForum, a liberal minded think-tank working out of King's College London, have released an interesting paper today on public sector wage bargaining.  (To read the full report, click here.)

In brief, the reports author - Alison Wolf, a professor of public sector management - makes the case for bringing an end to the current system, in which pay deals for entire public services are negotiated centrally, with equivalent employees (regardless of where they work in the country, or the particular conditions they face) paid the same amount. In other words, the teacher in Kent gets paid the same as the teacher in Newcastle.

Presented like that, some will wonder what the problem is. Surely if you're doing the same job, you should get paid the same money. But as Professor Wolf points out, the consequences of such arrangements can be damaging for both Kent and Newcastle.

For the poorer regions of the UK, these centralised bargains can have a distorting effect on local labour markets, inhibiting economic growth. As a few of the comments under a relevant Times article attest, people in certain regions are making a rational decision to work for the public sector instead of the private; pay and conditions are just so superior they would mad not to.  Data confirms this, revealing some parts of the UK labour market are now almost totally dominated by public sector employees. (See this post for more details.) Note too that such labour markets are therefore entirely dependent on taxpayers cash, and the broader economic and political repercussions of this trend become clear. 

For the better-off regions of the country, the problems are somewhat in reverse. By prescribing a set salary for a particular position, centralised pay bargaining restricts the options of public service managers in the hiring of staff. When presented with the question "should a struggling school not be able to offer more pay in order to entice the best teachers?" the system currently says no. Therefore the means by which the entire private sector in the UK tries to secure the best talent, is purposefully denied to those trying to provide the best hospital or school for their community. But just increasing the wages of all staff - the current approach - doesn't help. Wages across the public sector are not too low, but too rigid. Flexibility in pay bargaining would allow some public sector wages to rise, others to fall; the result of which would be good for the economy as a whole.

The report deals with these issues in depth, and looks at some interesting examples of countries that have ditched centralised pay bargaining in favour of individual contracts. Unsurprisingly, "anarchy" did not ensue. In fact public sector workers in these countries appear to thoroughly approve of the change. (To read the report in full, see here.)    

As the vast majority of those here in the UK doubtless would too if this change was explained, and then carried out, properly. But as the spokesperson from the TUC made pretty clear this morning on the Today programme (to listen, click here, skip to 1.20.00), that isn't likely. Apparently change to the UK's bargaining system would not only lead to chaos, but to the end of public services themselves. Not sure if that's true, but a change would certainly bring an end to the extraordinary power of the public sector unions over the taxpayer and Government. Whether that would be a bad thing is a debate whose time may be rapidly coming.  

CentreForum, a liberal minded think-tank working out of King's College London, have released an interesting paper today on public sector wage bargaining.  (To read the full report, click here.)

In brief, the reports author - Alison Wolf, a professor of public sector management - makes the case for bringing an end to the current system, in which pay deals for entire public services are negotiated centrally, with equivalent employees (regardless of where they work in the country, or the particular conditions they face) paid the same amount. In other words, the teacher in Kent gets paid the same as the teacher in Newcastle.

Presented like that, some will wonder what the problem is. Surely if you're doing the same job, you should get paid the same money. But as Professor Wolf points out, the consequences of such arrangements can be damaging for both Kent and Newcastle.

For the poorer regions of the UK, these centralised bargains can have a distorting effect on local labour markets, inhibiting economic growth. As a few of the comments under a relevant Times article attest, people in certain regions are making a rational decision to work for the public sector instead of the private; pay and conditions are just so superior they would mad not to.  Data confirms this, revealing some parts of the UK labour market are now almost totally dominated by public sector employees. (See this post for more details.) Note too that such labour markets are therefore entirely dependent on taxpayers cash, and the broader economic and political repercussions of this trend become clear. 

For the better-off regions of the country, the problems are somewhat in reverse. By prescribing a set salary for a particular position, centralised pay bargaining restricts the options of public service managers in the hiring of staff. When presented with the question "should a struggling school not be able to offer more pay in order to entice the best teachers?" the system currently says no. Therefore the means by which the entire private sector in the UK tries to secure the best talent, is purposefully denied to those trying to provide the best hospital or school for their community. But just increasing the wages of all staff - the current approach - doesn't help. Wages across the public sector are not too low, but too rigid. Flexibility in pay bargaining would allow some public sector wages to rise, others to fall; the result of which would be good for the economy as a whole.

The report deals with these issues in depth, and looks at some interesting examples of countries that have ditched centralised pay bargaining in favour of individual contracts. Unsurprisingly, "anarchy" did not ensue. In fact public sector workers in these countries appear to thoroughly approve of the change. (To read the report in full, see here.)    

As the vast majority of those here in the UK doubtless would too if this change was explained, and then carried out, properly. But as the spokesperson from the TUC made pretty clear this morning on the Today programme (to listen, click here, skip to 1.20.00), that isn't likely. Apparently change to the UK's bargaining system would not only lead to chaos, but to the end of public services themselves. Not sure if that's true, but a change would certainly bring an end to the extraordinary power of the public sector unions over the taxpayer and Government. Whether that would be a bad thing is a debate whose time may be rapidly coming.  

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