The public sector jobs boom

By Mike Denham, chairman of the TaxPayers' Alliance


Analysis by the National Institute for Economic and Social Research (NIESR) suggests that the number of people employed by the state is nearly double that of official estimates of 5.7 million. The original NIESR paper raises some excellent questions about exactly how we classify who does and doesn’t work for the taxpayer.


First, the author offers a partial re-examination of a famous 1970s paper Britain’s Economic Problem: Too Few Producers by Bacon & Eltis. (Amazon has a used copy on sale for £44.53 - if I could find my old copy, I’d be rich…)


It basically said there were far too many people doing low productivity jobs in the public sector, which starved the high productivity manufacturing sector of workers. It was a powerful argument at the time, and followed on from the 1960s Wilson government’s unhelpful experiment with a special tax on service sector employment to discourage its growth (Selective Employment Tax - SET).


Second, today’s official employment stats do seem to be all over the place. There are competing sources of data on public sector employment numbers, and the Labour Force Survey data apparently has public sector totals which are significantly lower than the sum of industries normally thought of as part of the public sector (Public Administration, Defence etc). NIESR’s paper does not explain what’s going on, but I presume the ONS are making adjustments for sampling error, or double-counting, or suchlike. This is certainly worthy of investigation and perhaps the Office for National Statistics (ONS) could issue an explanation on this.


Third, if the public sector employment numbers are so massively understating its true growth, why isn’t that growth reflected in the public consumption GDP numbers? Here’s the Daily Telegraph’s chart of employment growth, put together using ONS numbers:

And here’s NIESR's chart of public consumption (note the different time scale):

An obvious possible explanation is that the sectors NIESR identify as “public sector” - e.g. in health, adult social care, and education - are in some part being funded privately. Is it right to include that element in the public sector? 


The NIESR author, Paul Mortimer-Lee, certainly thinks so, telling the Telegraph:


“If it looks like a public sector job, smells like a public sector job and has the same terms and conditions as a public sector job, then it's probably a public sector job. Whatever the government statisticians say, this is a better way of measuring it.”


He added that nearly two thirds of the increase in the labour supply has been absorbed by the public sector over the last 25 years.


Assuming that stacks up, that’s surely a key factor in our poor productivity growth over the last two decades.


While the official data from the ONS will continue to be widely used for analysis, the NIESR paper starts an important discussion about the size of the state.

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