Public and private sector wage increases – the real story

This is a preview from the National Institute Economic Review, August 2017, no 241

Ahead of the forthcoming issue of the National Institute Economic Review (NIER no. 241) that will be published on Wednesday 2nd August, we release a series of boxes, each of them looking at specific aspects of economic and social policy.

This Box, prepared by Prof. Peter Dolton, NIESR Research Director, focuses on public sector wages.

"There has recently been scrutiny of public sector wage rises and the limits which have been placed on them since 2010. There is a perennial debate over the relative pay in the public and private sectors. Most public sector workers have been subject to either a pay freeze or only a 1% pay rise per annum in the past 7 years. Allowing for inflation this has meant that variously they have seen their real wages fall on average by 12% over this time period. In this box we track the course of public and private sector wage increases since 2004 and explain what Public Sector Pay Review Bodies are and how their remit has been curtailed since 2010. (....)

"The real pattern of wage increases in the public sector is that wage increases in the public and private sector tend to follow each other with a lag. Determining whether it is public sector pay that follows private sector pay, or the reverse is true, is not a straightforward matter and would require some careful econometric analysis".