Do workers really earn more in the public sector?
16 September 2010
Public sector pay was under scrutiny again yesterday, as many newspapers and broadcast outlets led with stories claiming that public servants receive better salaries and pensions than their private sector counterparts. The Daily Mail's headline read "State Workers Get £136 a Week More Than Private Employees in Pay and Pensions", whilst Sky News led with "Public Pay Is £7k More Than Private Sector". However the Office for National Statistics (ONS) report to which these headlines refer warns in its opening paragraph "that the answers are more complex than such claims suggest." Trade unions have questioned the validity of making the kind of comparisons featured in much of the reporting on the topic. The TUC's Nigel Stanley, for example, wrote that "as jobs are not identical in the two sectors, it is impossible to say in which sector someone doing a particular job would be better paid." So what does the evidence really tell us about this complicated subject? Skilled and unskilled workers: One of the problems identified by Mr Stanley is that the workforces employed in the public and private sectors are not necessarily alike. He writes: "The public sector employs a much more skilled workforce than the private sector, with a much higher share of graduate and professional workers than the private sector." So is this true, and does it impinge upon the ONS report's findings? According to ONS Labour Force Survey figures, the public sector does indeed employ a higher proportion of graduates than the private sector. In 2009, 38.5 per cent of public servants held a degree-level qualification or higher, compared to 20.2 per cent of private sector workers. At the other end of spectrum, 8.4 per cent of private sector employees hold no formal qualifications whatsoever, compared to 4 per cent in the public sector. So it would appear that Mr Stanley is right to highlight the higher level of average academic training in the public sector. Whether or not this is responsible for the higher earnings in the public sector is another matter. The Annual Survey of Hours and Earnings (ASHE), which was used by the ONS to compile its comparison of public and private sector pay, does not record an employee's educational background, so cannot comment on any purported link to increased earnings in the public sector. However analysis of the Labour Market Survey data suggests such a link is valid. Across both public and private sectors, graduates earn an average of £135 a week more than those with A-level qualifications or lower. Coincidentally, this is almost exactly the same figure quoted in the Mail as the weekly difference between public and private sector wages. Gold-plated pensions? A second point contested by the unions was that of public sector pensions, with more questions being aired about the legitimacy of comparing those in the private sector with their public sector equivalents. The National Secretary of the GMB Union, Brian Strutton, said: "You have to compare apples with apples to make sense of any set of statistics… public sector workers are not overpaid with gold-plated pensions and this [ONS] Government report proves it." His objection rests on the proposition put by Nigel Stanley that "two out of three private sector staff get no pension contributions from their employer." This, it is claimed, artificially inflates the 'total reward' in the public sector. Indeed this is something highlighted in yesterday's ONS report itself, which notes that the phenomenon of higher pensions in the public sector exists "predominately due to the larger proportion of employees who do not belong to employer pension schemes (with zero pension contributions) in the private sector. A comparison of total reward on a like-for-like basis, comparing full-time employees with pensions in both sectors, shows that total reward is higher in the private sector than the public sector." As Full Fact has already discovered, the figures attributed to public sector pensions have themselves been the source of some controversy. This is because there is a distinction to be made in public sector pensions between funded and unfunded schemes. Whilst the former uses investments to provide returns, the latter relies on employer contributions. Given that ASHE is a survey of employer contributions, funded pension schemes are not represented. Conclusion The Office of National Statistics report actually notes many of the caveats raised by the unions, however much of this important context has been lost in the media reporting on the issue. Far from conclusively reporting the relative pay of workers in the private and public sectors, the ONS report seems to ask more questions than it answers.