23 december 2011, cut pay or headcount ?

The pay of the seven million or so people that work in the public sector is a big issue in the uk, as elsewhere, but it is not just pensions that represent an effective uplift (worth perhaps 15%) but also time worked (up to 25%) and, until recently at least, job security (and redundancy brings generous compensation). Length of service as a basis of pay rather than performance also hobbles outcomes. It was once the case that these less visible benefits counterbalanced salaries lower than in the private sector, but no more: equivalent public sector wages are now some 12% higher than private ones, although the question of formal qualifications needed, which private employers tend to be more flexible about, can obscure this. Nor is the gap entirely in higher grades: workers 4% less well paid than their private sector equivalents 15 years ago (nhs versus private healthcare nurses, for example) are now 25% better paid. A key question that arises from all this (now being asked by the government in its autumn statement) is whether the current system of national pay setting is optimal either for those workers in higher-cost areas (like the south east) who are effectively paid considerably less (given a higher cost of living) or for those lower cost areas who in a liberalised market ought to attract many more of those jobs. There is of course fiendish politics in this, but there may be a way to sell the unhooking of public pay in a local labour market with a simultaneous announcement of the 10, 000 new jobs that would arrive with the relocation of say parts of the department for business, whose central purpose today is after all supposed to be "rebalancing the economy" by creating more jobs outside london. Cutting public sector jobs is at the moment the only way being pursued to balance the books, but varying pay, which would do more to sustain and even create jobs where they are most needed, must surely appear on the radar at some point.