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

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?

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.