Public sector workers are systematically paid better than those in the private sector

Daniel Knowles, in a blog for the Telegraph, repeats the tired old argument that, while private sector workers might in general be paid less, graduates are paid more and the need for lots of them at public sector bodies like the Treasury explains why public sector pay is so high. As a result, he argues that pay restraint in the public sector is a bad idea as it would mean it wasn't worthwhile for good candidates to take important jobs in the sector.

The way to test his argument is obvious: adjust the overall pay differentials for differences in theĀ age, skills and qualifications of those working in each sector. That way you get a comparison that takes account of those sorts of differences. It takes a bit of empirical work but fortunately both the Institute for Fiscal Studies and the Office for National Statistics have produced such an analysis. We cited the results in the 2020 Tax Commission report. The Institute for Fiscal Studies found that average hourly wages were 8.3 per cent higher after adjusting for public sector workers having "greater experience and more education". The Office for National Statistics estimated in March 2012 that allowing "for these differences as far as possible, in 2011, public sector employees were paid on average between 7.7 per cent and 8.7 per cent more than private sector employees".

If, instead of that kind of systematic analysis, you just pluck out one part of the distribution - those with degrees - and look at their raw pay in the public and private sectors then you will get into all sorts of trouble. You no longer have any kind of adjustment for the kinds of jobs people are doing and their other characteristics. That is much harder to compare at the top end of the income distribution, where issues around the degree of autonomy and accountability someone has in their work become a much more significant part of decisions over their remuneration.

The best evidence we have clearly suggests a substantial pay gap with staff in the public sector getting significantly more. That's leaving aside pensions. Public sector staff get much more generous pension provision too and that is equivalent to up to another fifth on their remuneration.

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