Are Public Employees Overpaid?

September 15, 2010 11:12 AM



 

Sorry... what pay cuts are we talking about?

 

Yesterday's research study from the Office for National Statistics confirmed what BOM readers have known for some time - Britain's public sector employees are on average paid much more than their private sector counterparts. Here's the summary table (click on image to enlarge): 



As we can see, the ONS have done their comparisons both for gross pay, and for gross pay plus employers' pension contributions. They have looked separately at men and women, and they have also looked at different points in the income distribution.


The conclusion is overwhelming - for both men and women, for both high and low earners, for incomes including and excluding pensions, public sector employees do much better than private sector. The median employee in the public sector gets nearly 30% more than his/her counterpart in the private sector, once we take account of the employer's pension contribution.


And in truth, the public sector does even better than the ONS numbers suggest. That's because the ONS only takes account of the employers' explicit pension contribution, a contribution that hugely understates the true cost of public sector pensions. As we blogged here, the true cost of public sector pensions as a percentage of salary averages around 25% more than current pension contributions.


Which means that we need to gross up the public sector total reward numbers even further. At the median income level that probably takes the public sector premium up to a staggering 50%.


Now, the ONS paper argues that since most private sector employees no longer get company pensions, the comparison ought to be confined to those that do. And if you do that, you find that the private sector actually does better than the public.


That's a strange and unconvincing argument. These days (thanks in large part to measures introduced by the last government) private sector pensions are increasingly confined to senior employees. So by restricting the private sector sample to those with company pensions, you introduce a massive bias towards the better paid. Hardly surprising then, that group does better than the average public sector employee - it also does a lot better than the average private sector employee.


No, the numbers say that - once you take account of the full cost of pensions - the typical public sector employee gets up to 50% more than the typical private sector employee.


Skills differences? That's the argument used by the public sector unions. They say that the typical public sector worker is better qualified and does a more demanding job.


Another unconvincing argument. For one thing, nobody should be prepared to pay more just because people have more paper qualifications. Especially when many of today's qualifications are widely thought to have been dumbed-down.


And when we looked at the evidence on the kind of jobs people actually do (occupational mix) we found a very muddy picture. The public sector does indeed employ more "professionals" than the private sector, but  it employs far fewer "managers and senior officials", and virtually no "skilled trades". And at the bottom end of the scale, there is virtually no difference in public and private sector employment of "elementary occupations".


As others have commented, yesterday's ONS report blows a massive hole in the union case against a public sector pay squeeze.


There must be no coalition wobbling on either the pay freeze or the reform of public sector pensions.



 

Sorry... what pay cuts are we talking about?

 

Yesterday's research study from the Office for National Statistics confirmed what BOM readers have known for some time - Britain's public sector employees are on average paid much more than their private sector counterparts. Here's the summary table (click on image to enlarge): 



As we can see, the ONS have done their comparisons both for gross pay, and for gross pay plus employers' pension contributions. They have looked separately at men and women, and they have also looked at different points in the income distribution.


The conclusion is overwhelming - for both men and women, for both high and low earners, for incomes including and excluding pensions, public sector employees do much better than private sector. The median employee in the public sector gets nearly 30% more than his/her counterpart in the private sector, once we take account of the employer's pension contribution.


And in truth, the public sector does even better than the ONS numbers suggest. That's because the ONS only takes account of the employers' explicit pension contribution, a contribution that hugely understates the true cost of public sector pensions. As we blogged here, the true cost of public sector pensions as a percentage of salary averages around 25% more than current pension contributions.


Which means that we need to gross up the public sector total reward numbers even further. At the median income level that probably takes the public sector premium up to a staggering 50%.


Now, the ONS paper argues that since most private sector employees no longer get company pensions, the comparison ought to be confined to those that do. And if you do that, you find that the private sector actually does better than the public.


That's a strange and unconvincing argument. These days (thanks in large part to measures introduced by the last government) private sector pensions are increasingly confined to senior employees. So by restricting the private sector sample to those with company pensions, you introduce a massive bias towards the better paid. Hardly surprising then, that group does better than the average public sector employee - it also does a lot better than the average private sector employee.


No, the numbers say that - once you take account of the full cost of pensions - the typical public sector employee gets up to 50% more than the typical private sector employee.


Skills differences? That's the argument used by the public sector unions. They say that the typical public sector worker is better qualified and does a more demanding job.


Another unconvincing argument. For one thing, nobody should be prepared to pay more just because people have more paper qualifications. Especially when many of today's qualifications are widely thought to have been dumbed-down.


And when we looked at the evidence on the kind of jobs people actually do (occupational mix) we found a very muddy picture. The public sector does indeed employ more "professionals" than the private sector, but  it employs far fewer "managers and senior officials", and virtually no "skilled trades". And at the bottom end of the scale, there is virtually no difference in public and private sector employment of "elementary occupations".


As others have commented, yesterday's ONS report blows a massive hole in the union case against a public sector pay squeeze.


There must be no coalition wobbling on either the pay freeze or the reform of public sector pensions.

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