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Increasing pay gap between public and private sector workers

A study just published by the Office for National Statistics (ONS) shows that in April 2011 the average worker in the public sector received 8.2% more in hourly pay than an average worker in the private sector. This compares with differences of 7.8% in 2010 and only 5.3% in 2009.

Private sector workers fare badly on average compared to public sector workers.

Why is the gap getting wider? Many would argue that as the public sector is using taxpayers’ money to pay wages, they are not so accountable as private sector companies. Paying wages which are too high in the private sector may mean the difference between staying in business and closing down.

In the Budget last week the Chancellor said that he was looking at ways in which public sector pay could reflect regional differences in pay rates. The Institute for Fiscal Studies for example, has found that there is a gap of 18% between public and private pay rates in Wales.

But can the gap be justified? There are a number of reasons as to why public sector workers should possible be paid more according to the ONS.

  • The public sector is made up of a higher proportion of skilled jobs – widening over the last decade as lower skilled jobs have been outsourced from the public to private sector.
  • The public sector consists of a higher proportion of older employees and earnings tend to increase with age and experience.
  • The public sector workforce contains more people with a degree or an equivalent qualification, 40% in 2011, compared with 25% in the private sector.
  • The gap between the lowest and highest earners in the private sector with the top 5% (95th percentile) of earners paid around 5.7 times more than the bottom 5% (5th percentile). The gap is 4.5 times in the public sector.

It is clearly important to compare like with like, and it is often difficult to find comparative jobs between the two sectors, and it is quite probable that when age, skill levels and qualifications are taken into account the differences can be viewed as being more reasonable.

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Posted in Earnings, labour markets

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