The Labour Market Implications of Changes in the Public Sector: Inequality and Work Quality

Lead Research Organisation: Swansea University
Department Name: School of Management

Abstract

Summary

As part of their fiscal consolidation plans the Coalition Government has announced its intention to promote a fundamental shift in the economy away from public to private sector activities. Given that in 2009 just over 6 million workers were employed in the public sector and public sector pay accounted for almost 31 percent of all government expenditure, it is hardly surprising that the government sees a reduction in the size of the public sector, and in particular in the size of the public sector pay bill, as a key priority in meeting their plans to reduce the scale of the structural deficit. As part of its policy of fiscal consolidation the Government announced a two year pay freeze on public sector pay in 2010, which will be followed by a further 1 percent annual cap on public sector pay until 2015. Pay Review bodies that recommend pay awards for a large proportion of workers in the public sector have also been asked to consider local variations in public sector pay rates.

The Office for Budget Responsibility has recently estimated that cuts in public spending are likely to result in direct job losses in the public sector of around 710,000. In addition other commentators have estimated that spill-over, or indirect, effects of public sector spending cuts are likely to result in over half a million additional jobs being lost in the private sector. Although it is generally agreed that current expenditure plans are likely to have major structural implications for the UK economy there has been little research undertaken to date on what the labour market consequences of these cuts in public spending are likely to be. This research begins to address some of these issues and considers the effects of the deficit reduction programme on two themes of research broadly based around labour market inequality and work quality.

Within the first theme, labour market equality, the following questions will be addressed using data from the Quarterly Labour Force; the Annual Population Survey; and Understanding Society:

(a) How do the spending cuts effect the movement of different groups of individuals across different boundaries in the labour market (i.e. public and private sector employment, unemployment and economics inactivity) and what are the implications of these movements for changes in the main labour market aggregates overtime?
(b) What happens to the wages of workers displaced from the public sector that find work in the private sector, and what are the characteristics of the 'gainers' and 'losers' in this process?
(c) What are the implications of job losses and restrictions on pay growth in the public sector for wage differences between different equality groups, particularly those who may have benefited from the protection afforded to them by employment in the public sector?
(d) How do the consequences of job losses and pay restrictions in the public sector vary between regions and what are the likely implications for inter-regional differences in wages and economic prosperity?
(e) How robust is the recent evidence relating to local variations in the public/private sector wage differential and how do inter-regional variations in public/private sector pay vary over the wage distribution and across different parts of the public sector?

Within the second theme, work quality, the focus is on a wider set of intrinsic rewards to work in the public sector (e.g. job control, work pressure, job satisfaction and worker wellbeing) rather than on extrinsic rewards such as pay. The analysis will be based on the ESRC sponsored Skills and Employment Surveys and will address two specific questions:

(a) To what extent is the intrinsic quality of work in the public sector better or worse in the public sector compared to the private sector?
(b) To what extent has the recession and deficit reduction programme narrowed or widened these work quality differences between the public and private sectors?

Planned Impact

Impact Summary

The research undertaken and its findings will be of interest and/or benefit to:

(1) Government departments and other bodies with interests in monitoring labour market inequality, public sector employment and service provision, and local variations in public sector pay. These include HM Treasury, the Department of Work and Pensions (DWP), the department for Business, Innovation and Skills (BIS), the Equality and Human Rights Commission (EHRC), and the Public Sector Pay Review Boards.
(2) Devolved Governments and Unitary Authorities of the UK concerned with the effects of reduced spending in the public sector on regional wage differentials and on the spatial distribution of economic prosperity.
(3) Representatives of public sector workers in the UK: UNISON, the Public and Commercial Services (PCS) union, NUT and NASUWT and the TUC.

The proposed research directly addresses issues of labour market equality for a number of groups in the UK that are likely to be affected unequally by the changes proposed in the public sector. Issues of specific interest to the groups identified include:

(1) The magnitude and distribution of job losses in the public/private sector and the implications of these job losses, particularly on subsequent economic status and earnings, and their impact on the regions of the UK and equality groups.
(2) The size and nature of public/private sector wage differentials for different equality groups employed in different areas of the UK and in different parts of the public sector.
(3) Variations in public sector pay across the earnings distribution; how this has changed over time, and implications that changes in public sector pay have for the recruitment and retention of staff.
(4) The effect of job losses and restrictions on pay increases in the public sector on regional earnings differences and on the gender and ethnic wage gap.
(5) The differences between, and changes to, broader measures of the job quality in the public sector and private sectors.

Early dissemination of findings to policy makers will be achieved though the auspices of WISERD Policy Briefings, seminars/workshop presentations to key stakeholders groups, blogs and the production of an in-house (virtual) newsletter.
 
Description The strategy to achieve fiscal consolidation in the wake of the financial crisis has included cuts to public expenditure and a political desire to rebalance the UK economy away from the public sector and towards the private sector. This was at a time when the public sector accounted for 21 per cent of total employment and the public sector wage bill accounted for 30 per cent of government expenditure.

Politically, this strategy has been relatively easy to implement given the common perception that public sector workers are privileged in terms of their pensions, pay, working conditions and job quality. Indeed, some of have suggested workers in the public sector are 'more than 40% better off' than those in the private sector and that this has increased during the recession.

The project's key findings have relevance for this debate and the claims and counterclaims which surround it. These include the following:

1. Using the Labour Force Survey (LFS) (1994-2012) the project shows that the public sector premium has fallen with the sharpest fall occurring before 2007. However, a public sector pay premium, although decreasing, remains for women and low paid workers. Compared to workers in the private sector, high paid workers in the public sector do consistently worse than their private sector counterparts and there is evidence that 'worker quality' in the public sector has fallen overtime.

2. Using the LFS the project shows that regional variations in the public sector wage premium have been exaggerated; although problems for the recruitment and retention of public sector workers still remain in London and the South East, primarily because the pay of public sector workers in these areas tends to be lower than otherwise equivalent private sector workers.

3. Using the Annual Survey of Hours and Earnings (ASHE) and the LFS (1993-2007) the project shows that the impact of pay settlements determined by the Pay Review Bodies on the annual change in wages for ten occupational groups has been negligible.

4. Using the Skills and Employment Survey series (1997, 2001, 2006 and 2012) the project does not find evidence to support the anticipated public sector double premium of better wages and better quality work. Instead, the raw public sector pay premium tends to compensate for differences in the intrinsic features of work.

5. Women and disabled people are over-represented in the public sector (37% of female and 32% of disabled employees work within the public sector compared to 29% overall in 2013). Using the LFS 1998-2013, the project shows that the wage gaps for both these protected groups are lower in the public sector. More detailed analysis for the gender pay gap indicates a narrowing trend in both sectors which stalls from 2010.
Exploitation Route 1. Future work may usefully consider differences that emerge within the public sector such as how the gender pay gap varies across occupations.
2. Subsequent analysis which compares work in the public and private sectors should examine further indicators of job quality and the wider experience of work to provide a more complete picture of sector differences than evidence which focuses solely on pay.
3. Findings in relation to public-private sector differentials in job quality and outcome gaps (pay and job quality) for protected groups provide an important contribution to evidence considered by Pay Review Bodies.
4. Findings challenge popular media accounts that 'the grass is greener' for workers in the public sector.
5. Work representing expected outputs from the project but not yet in final form also include an investigation of sectorial differences in earnings across central and local government; differences in over and under-skilling in the public and private sectors and their impact on earnings; and difference in outcomes between public and private sector workers other than those measured directly by earnings and the associated effects of job quality.
Sectors Government, Democracy and Justice

URL http://wiserd.ac.uk/labour-market-public-sector
 
Description Findings produced by the award were used in public policy debates concerning the regionalisation of public sector pay
First Year Of Impact 2012
Sector Healthcare
Impact Types Economic,Policy & public services

 
Description Citation in IFS Report on Public Sector Pay in the UK
Geographic Reach National 
Policy Influence Type Citation in other policy documents
Impact Determining government policy in the area of public sector pay
URL http://www.ifs.org.uk/uploads/publications/comms/r97.pdf
 
Description Citation in IFS Report on Public Sector Pay in the UK
Geographic Reach National 
Policy Influence Type Citation in other policy documents
Impact Pay setting in the public sector
URL http://www.ifs.org.uk/uploads/publications/comms/r97.pdf
 
Description Citation in Market facing pay: How agenda for change pay can be made more appropriate to local labour markets - NHSPRB Analysis and Research
Geographic Reach National 
Policy Influence Type Citation in other policy documents
Impact Pay setting in the public sector
URL https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/228712/8501.pdf
 
Description Citation in NHS Pay Review Body 27th Report 2013
Geographic Reach National 
Policy Influence Type Citation in other policy documents
Impact Informing pay setting in the public sector (NHS Pay Review Body)
URL https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/228875/8555.pdf
 
Description Citation in NHS Pay Review Body Report, 2014
Geographic Reach National 
Policy Influence Type Citation in other policy documents
Impact Contribution to the debate on the nature and extent of the public sector pay premium
URL https://gov.uk/government/uploads/system/uploads/attachment_data/file/288690/NHS_Pay_Review_28th_rep...
 
Description Melanie Jones (WP 3.5) 6.12.17 Meeting Chwarae Teg - Gender Pay Gap 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact Initial visit to Chwarae Teg to provide expertise and develop research informed policy recommendations
Year(s) Of Engagement Activity 2017
 
Description Melanie Jones (WP3.5) 21.09.17 OME conference: Research on public sector pay.The gender pay gap in the public sector 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Presentation on "The gender pay gap in the public sector" at the Office of Manpower Economics Annual Conference. Audience consisted of Pay Review Body Members, other policymakers and trade union representatives. Discussion and questions followed the presentation.
Year(s) Of Engagement Activity 2017
 
Description Melanie Jones 24.6.14 'Is the Public Sector Pay Advantage Explained by Differences in Work Quality?' NIESR Event, Using Secondary Data Analysis to Research Economic Performance 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact About 15-20 policymakers attended the NIESR Event
Year(s) Of Engagement Activity 2014
 
Description Professor Melanie Jones 12.1.17 Gender, Employment and Pay Network (CARBS) "Tracking gender pay gaps over 15 years. Does the public sector make a difference?" 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Professional Practitioners
Results and Impact Dissemination of research findings to WAVE Gender Employment and Pay Network which includes representatives from public and private sector organisations with an interest in gender equality at work. Research will be used to inform practice within organisations.
Year(s) Of Engagement Activity 2016
URL http://www.wavewales.co.uk/gender-employment-and-pay-network-gepn/
 
Description Professor Melanie Jones 23.6.16 What can survey data tell us about gender discrimination in the labour market? Cardiff Public Uni 11 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Public/other audiences
Results and Impact An informal and accessible introduction into measuring gender discrimination within the labour market.
Year(s) Of Engagement Activity 2016
 
Description Video The UK gender Pay gap 1998-2013: What is the role of the public sector? 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact Disseminated accessible information to a broader public audience.

Engagement activity is ongoing.
Year(s) Of Engagement Activity 2014
URL http://wiserd.ac.uk/research/inequalities/current-projects/labour-market-implications-changes-public...