Wage Determination in the UK Private and Public Sectors
ETHNIC, EDUCATED AND AMBITIOUS? GO PUBLIC, YOUNG MAN!
A comparison of pay in the public and private sectors in the UK reveals considerable benefits for experienced and highly skilled men working in the public sector, particularly if they come from an ethnic minority. The study by Monojit Chatterji and Karen Mumford shows that for full-time male workers:
- Public sector employees on average earn £10.97 per hour while their private sector counterparts earn £10.073 per hour – a differential of 8.9%.
- The variance of public sector hourly pay across workers is 46% higher for public sector workers than their private sector counterparts.
- Each extra year of experience raises hourly pay by 1.8% in the public sector but only 1.3% in the private sector.
- Ethnic minority workers earn a 9.3% premium in the public sector whereas they suffer wage discrimination of 7.5% in the private sector.
- A larger proportion of public sector workers are in the elite high skill white-collar occupations than in the private sector.
Perhaps the most surprising result is that pay is more variable in the public sector. Given the greater prevalence of performance-related pay, bonuses and other incentive schemes in the private sector, one might well have expected the opposite.
Contrary to popular perception, public sector managers are not taking the easy route by not differentiating between their employees when it comes to pay. The presence of a relatively large group of highflying highly skilled white-collar employees is also contributing to the higher variance.
The greater rewards accruing to experienced workers in the public sector is probably a reflection of the fact that many public sector salary structures are based on a seniority scale so that the reward for experience is built in to the system.
For ethnic minority workers, public sector employment has a beneficial double whammy. They avoid wage discrimination in the private sector and get a premium over their white counterparts in the public sector.
The data used in this study are drawn from the Workplace Employee Relations Survey 2004, a nationally representative survey of both workplaces and their employees. The linked nature (and extensive questionnaires) of this data makes it possible to control far more extensively for both individual employee characteristics and workplace characteristics than has been possible in previous earnings studies. A further attractive feature of the data, of particular relevance to this study, is the extensive information it provides on both public and private sector workplaces.
The public sector wage bill is a matter of great concern to policy-makers contributing as it does to nearly 50% of government spending. As part of his continued commitment to low and steady inflation, a significant part of the Chancellor's Comprehensive Spending Review is focused on public sector pay and implications for the public sector wage bill.
ENDS
Notes for editors: ‘Wage Determination in the UK Private and Public Sectors: A Preliminary analysis using WERS 2004’ by Monojit Chatterji and Karen Mumford was presented at the Royal Economic Society’s 2007 Annual Conference at the University of Warwick, 11-13 April.
Monojit Chatterji is at the University of Dundee. Karen Mumford is at the University of York
For further information: contact Romesh Vaitilingam on 07768-661095 (email: ).