Lifting the cap? The importance of interactions between public and private sector wage growth in the UK

This is a preview from the National Institute Economic Review, November 2017, no 242

This Box, prepared by NIESR Senior Economist Arno Hantzsche, outlines the interplay between private and public sector wage growth in the UK

"Political pressure is mounting to lift the cap on public sector pay. Since pay restraints were introduced in 2010, real personal disposable income has been squeezed and the gap between public and private sector wage growth has widened. A key question is what the effects of a public pay increase will be on the wider economy, in particular on inflation and monetary policy. To gauge these effects, it is crucial to understand the interactions between public and private sector wages. An ongoing research project at NIESR analyses this feedback mechanism in more detail."