Is there a gap between public and private sector pay?

The Treasury has announced that the budget and spending review will end the public sector wage freeze announced around this time last year.

Public sector employees are generally those paid directly by the state as teachers and members of the military. Everyone else works in the private sector.

How much their salary will increase from April will depend on the recommendations of the wage review bodies.

The Treasury said the wage freeze in 2020-21 helped “to ensure equity between the private and public sectors”.

There is no doubt that there is a gap between public and private sector pay, but whether that is right is a thorny question.

Like the Institute for Tax Studies (IFS) says, public sector workers are more likely to be highly skilled professionals earning higher wages in the labor market.

So the problem with comparing average earnings for the public and private sector is that highly educated professionals should earn more.

And this has been increasingly true as successive governments have paid private sector companies to do lower-paying jobs like housekeeping, security or catering.

The IFS also calculates the percentage gap between public and private sector pay when considering characteristics such as a worker’s education and experience, which is the purple line in the graph below.

Public sector wages were frozen from 2011-13 and then limited to a 1% annual increase through 2018.

As a result, the gap between public and private sector pay has narrowed since 2011, so that in 2019-20 there was no gap once their characteristics were taken into account.

In 2020-21, the gap widened slightly, indicating that the public sector had a slightly better year than the private sector.

And we knew it: Public sector employees worked very hard during the pandemic, but they weren’t laid off and were less likely to lose their jobs than those in the private sector.

The Treasury statement states that average earnings in 2020-21 have increased:

This is not the figure used by the Office for National Statistics (ONS), which calculates the figures.

According to the ONS, average earnings in 2020-21 increased:

The reason for the difference is that the Treasury has taken an average of all the monthly data of 2020-21 and compared them with the same figure of 2019-20, while the ONS compared the average pay at the end of 2019-20 with the media pay at the end of 2020-21.

So the Treasury figure takes into account more of the decline experienced by the private sector during 2020, when employees were laid off, which meant that some of them received only 80% of their normal pay.

You can see that drop very clearly in the blue line in the first chart of this piece.

The way the Treasury calculates this makes the change in private sector wages look considerably worse than the ONS stock figures.

There are other caveats on earnings data at the moment, with the very big changes in things like bonus payments during the pandemic making the figures difficult to analyze.

However, it is still fair to say that public sector workers had a better wage period during the pandemic than their private sector counterparts.

But if you take a long-term view, many public sector workers have had a hard time.

The IFS says, for example, that salary levels for experienced teachers in 2021 are 8% lower once you adjust to the price hike compared to 2007.

The average salary for NHS dentists decreased by 32% between 2006-07 and 2017-18 and is estimated to have continued to decline since then.

Of course, the attractiveness of a job isn’t just about the amount paid.

This analysis excludes pension benefit, which tends to be significantly better in the public sector.

In the private sector, on the other hand, bonuses and overtime payments are much more significant.

And one thing the pandemic highlighted is increased job security in the public sector, especially since those in the public sector were more likely to be classified as key workers.

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