Moving towards more efficient public sector pay

Data issued yesterday by the Incomes Data Services indicated that average pay settlements over the first quarter of 2011 in the public sector were close to 0 per cent. However, pay settlements in the private sector were closer to 3 per cent. Does this mean that Policy Exchange were wrong in a recent report to conclude that public sector workers are overpaid compared to their private sector counterparts?

The basic answer is no. We highlighted that on a range of measures, workers in the public sector were overpaid compared to their comparators in the private sector. Even on our most conservative measure, which accounted for compositional differences in terms of age, location, hours, gender and qualifications, this gap was around 9 per cent. This means that even if these average pay settlements continued at 0 per cent and 3 per cent for the public and private sectors respectively for the next two years, there would still be a significant pay premium to working in the public sector.