In a well-functioning private-sector labour market, the wage is an allocative mechanism that responds to
market forces of supply and demand. In the public sector, wages are an allocative mechanism, but also a
policy instrument. The government has the power to unilaterally change the conditions of many of its labour
contracts. Plus, wage growth is one of the key political decisions when preparing the yearly budget.
Ideally, policymakers should set employment at a level high enough to produce the public goods that the
citizens wish for and pay a wage that clears the market. In general, that is the wage paid by the private sector,
except when the public sector offers additional compensating benefits, like job-security, better pensions,
or better work-life balance. In those cases, the public(-sector) wage should reflect those differences and be
lower than that of the private sector. Out of a perfect world, wage determination is much more complex,
because public wages are used as an instrument to achieve many, sometimes conflicting, objectives, creating
differentials with the private sector and imbalances in the labour market.
The 2022 Deane-Stone Lecture on Economic Measurement will be delivered by Stian Westlake, on ‘the uses and abuses of economic statistics’, and how economic statistics find their way into public debate,...
You can download the slides from the event here. With Brexit and Covid-19 the UK is facing two large economic disruptions that are clearly affecting some places more negatively than others. In the absence...