Will Hutton’s interim report on fair pay in the public sector, published yesterday, is packed with statistics illustrating what has happened to public sector pay over recent years. Importantly, it places these trends squarely in the context of earnings in the private sector.
Kayte Lawton is a Research Fellow at the Institute for Public Policy Research (ippr)
Will Hutton’s interim report on fair pay in the public sector, published yesterday, is packed with statistics illustrating what has happened to public sector pay over recent years. Importantly, it places these trends squarely in the context of earnings in the private sector.
Rising pay disparities have been a feature of the UK economy since the 1980s. In 1979, someone with earnings at the 90th percentile (putting them in the top 10 per cent) earned 2.5 times more than someone with wages at the 10th percentile; by 2009 this ratio had increased to 3.7.
This trend has been driven primarily by the private sector, and in particular through very large rises in earnings for people in the top one per cent (see chart 2.E).
Earnings for this group started at £117,523 last year and around 290,000 people fell into this bracket. Not surprisingly, public sector workers make up only a fraction of these top earners – Hutton estimates that just 20,000 have such high wages, and many are hospital consultants and other medical specialists. The proportion of top earners who are public servants has been falling as wages for this privileged minority have risen.
The boardrooms of major companies are where pay has really rocketed over recent years. Hutton shows that the ratio between the median earnings of FTSE 100 chief executives and those of the median UK employee almost doubled between 1999 and 2008, rising from 47 to 88 (chart 2.M).
There is no evidence that company performance or the skills and commitment of CEOs witnessed a commensurate increase over this period (chart 3.D).
Meanwhile, the earnings of the highest paid civil servants are nowhere near those of even averagely-paid company executives. This is not to deny that wages at the top end of the public sector have been increasing more than at the bottom, as Hutton shows (chart 2.J).
Some of this is down to the changing balance of occupations in the sector and poor organisational governance, but it is also likely out-of-control executive pay has had a knock-on effect for top pay in the public sector. This suggests that the root of the problem is unlikely to lie solely in the public sector itself.
Agreed wage multiples as proposed by Hutton could have an important symbolic role, as well as helping to raise wages at the bottom or dampen future pay growth at the top in some parts of the public sector. But the limited role of public sector pay in driving pay differentials across the economy means that the impact on ‘fair pay’ would be very limited.
Top private sector pay, particularly in large firms, is the major driver of wage inequality, and this must be where future action is targeted.
19 Responses to “The private sector is the real source of unfair pay”
Chris
@mousey
Amazing you actually managed to write something in the comment box that was on topic and not just the usual cut and paste – does that mean an actual human wrote the above comments rather than the usual computer program? Maybe the editors of this blog should put a captcha on the comment box, it would at least make the human behind mouse work for his money.
“Your points are great”
Sevillista’s points are great and totally rebutted your generic high tory drivel.
“but have no bearing on the issue.”
Yes, they do.
“If Fujitsu tenders the best bid for the work and value for the taxpayer is upheld, then it is up to the shareholders of the companies and not government to set wages.”
No it isn’t, if they want taxpayers money they should abide by our rules.
“Governments should be elected to govern and not micromanage the country – we tried that with Labour and look where it got us.”
How did Labour micromanage the country? Labour biggest mistake was to leave the banks alone, if there had been more micromanagement of them, i.e. stopping them investing so heavily in CDOs, we would be up the creek.
“Provided the companies are acting lawfully it is no one’s business how they run their business’s…”
So, lets change the law to restrict extremely high levels of pay, we did so with extremely low levels of pay and its just been voted the best policy of the last 30 years. Warren Buffett recently denounced all this trickle down economics bullshit, it just concentrates wealth into an ever decreasing percentage of the population.
Mr. Sensible
The government is saying so much about pay in the public sector, but I don’t think is doing anything about what happens in boardrooms.
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