Following the Government’s Comprehensive Spending Review announcing there will be an end to progression payments in the civil service, some commentators were quick to back the move. Many in particular have pointed to Average Weekly Earnings (AWE) figures published by the Office for National Statistics suggesting that public sector earnings have ‘outstripped’ private sector wages. But how reliable is the claim that public sector wages have outstripped private sector wages?
Looking at the AWE over the past four years, private sector wages increased by 8.5 per cent, between April 2009 and April 2013, while public sector wages grew by slightly more at 8.9 per cent. But this 8.9 per cent figure includes nationalised banks such as Lloyds and the Royal Bank of Scotland. When nationalised financial services are excluded from the figures, as is the norm when comparing public and private sector pay, public sector wage increases are almost a third lower than the private sector at 6.3 per cent.
Added to this, the AWE is not a particularly clear guide to what is happening to pay. This is because it is as much a reflection to changes in the composition of the workforce as it is to pay movements for people actually in work. And it is the latter that we want to measure when we try to work out whether public sector pay is outstripping pay in the private sector.
So for instance, since the recession, there has been a major expansion in part-time work, particularly in low-paid sectors such as retail and wholesale, with many such employees working fewer hours than they would like. This in itself acts as a drag on private sector wages and is an example of how composition rather than actual in-work pay increases affect earnings levels in the index.
Another example is the fact that public sector job losses have concentrated on lower-paid support and administrative staff. Often such jobs are outsourced to the private sector (thus lowering the average private sector wage) or not replaced at all. This also has the effect of raising the average pay of those employed in the public sector even though the pay of many or most public sector workers might have been frozen or limited to increases of 1 per cent.
Such an effect is known as ‘pay drift’ and has been calculated by the Office for Budget Responsibility to be equal to around 1 per cent a year in the public sector. If this 1 per cent per year is factored into the AWE figures, then public sector pay growth of 6.3 per cent would be even lower. And this is without considering the potential effects of pay drift on the private sector, underlining just how uncertain the AWE figures are to in-work pay decsions.
And there are also other compositional factors. For instance, in June 2012, 180,000 staff in sixth form and FE colleges were reclassified from the public to private sector. The effect of this says the Office for National Statistics was to raise average earnings of the public sector by 0.7 per cent and lower average earnings in the private sector by around 0.2 per cent. This would suggest that without the reclassification, private sector regular pay growth in April 2013 would in reality be more than double the public sector – growing at 1.1 per cent compared with 0.5 per cent.
Of course, the AWE is not the only earnings data around. Other calculations have also suggested that public sector pay is higher than in the private sector. For instance, using Labour Force Survey figures, the Institute for Fiscal Studies estimates the difference in public and private sector pay is currently widening by 1.8 per cent per year. But such calculations, based on a regression of public and private sector wages, do not account for all the differences in pay between the two sectors, which the IFS itself admits. As a recent IDS report for Unison concluded, there are fundamental problems with such calculations, and fundamental problems comparing public and private sector pay.
Our recent blog on performance related pay illustrates it is a myth to believe that progression pay is confined to the public sector. IDS research shows consistently that pay progression arrangements are equally widespread in the private sector, whether this goes under the guise of performance pay or not. Moreover, the Government is not seeking to abolish pay progression altogether – this would mean abolishing pay scales in the public sector – it simply wants to abolish ‘automatic’ progression based on time served.
However, if the argument is that ending automatic progression pay in the public sector is necessary to curb excessive public sector pay rises, it is far from evident that the AWE data is robust enough to show that public sector workers are actually receiving higher pay rises than their private sector counterparts. In fact, many public sector workers have been subject to strict wage restraint. For others, there is the prospect of reform to pay progression arrangements, prompted at least in part because of the popular misconception that public sector pay has ‘outstripped’ private sector pay.