How does the mixing of public finance and private finance (such as introducing private finance initiatives to the NHS, or managemant consultancies to every aspect of the public sector)(or publically financing the entire banking sector) affect the legitamacy of any of these comparisons?

Why do economists and ‘market analysts’ decide one sector is legitimate and the other not?

but maybe the ‘science’ is a good place to start…

The main issue, as has been pointed out above, is the number of important covariates that need to be considered when comparing, say, public sector and private sector pay.

As has been addressed, the public sector employs a relatively large proportion of graduates (in a number of countries, a large volume of low paid men’s work – for example – was removed from the public service during 1980s public service structural reforms). Also, in some countries, public servants tend to be older on average, which is another good explanation for higher pay – older workers tend to be paid more than younger ones for social capital reasons.

The main complexity of talking about private sector versus public sector pay is that often the comparisons are between apples and oranges with no attempt to control for differences between these two employer types. Good research on pay (which goes back to the 1960s) has tended to try to control for industry, and there have been some attempts to control for occupation. There are standardised classification of industry and occupation codes that can be used, to assist this process.

Another key explanatory factor is job size, which is used by many employers to set the pay banding for a job. The translation of job size into pay is moderated by industry and occupation, so that jobs of similar size can pay quite differently depending on the particular role/scarcity of applicants for the particular occupation.

Finally, employers actively check their pay scales against “market” remuneration information for occupations, and different employers pitch their pay scales to different levels of the market remuneration. For example, some public sector organisations peg their remuneration at around the 50% mark. Clearly, employer decisions around where to set their remuneration rates are going to directly affect employee pay.

Any analysis of pay gaps that does not take account of these differences is simplistic and “bad statistics” let alone bad science.

If anyone is interested, there is a large volume of peer reviewed research on pay gap analysis, in particular the Blinder-Oaxaca decomposition (multiple regression technique) has been used.

cheers all.

This relates to the Republic of Ireland, but I’m sure that there will be something similar for the UK. As always, skip to the methodology section. You may notice, for example, that the ‘paper’ compares only remuneration in the months of March 2003 and 2006 so, presumably, bonuses are not included! There are also some odd assumption made but not explained such as corrections for demographics. Naturally, the study concludes that the public sector is the land of milk and honey. Funny that!

Anyway, why not compare jobs at various levels which do exist in both the sectors (e.g. lawyer, IT worker, press officer…). Surely, that would be more meaningful. Let me know what you think.

A difference might persist in jobs where there was some special requirement, for example medicine or some restriction on moving freely, such as along training period but in the long run that difference should be erroded as people jump over whatever hurdles are preventing them from making an immediate move.

I am a professional about to move from the private sector to the public sector. I will probably earn slightly less over the next five years cash in hand but this (in my view) is made up for by more holiday, flexible working, a much better pension and better opportunties for training and development. I choose to take time now and in the future over money now. I parley my position in the market into a remuneration package of size and shape that is acceptable to me. In time I may decide that my current work is not interesting enough for me so decide to take a lower salary whilst I retrain to do something more interesting. I may take a smaller remuneration package for a more interesting job. To hire me as an accountant will cost you £50k a year or better holidays, as an economist £40k on average and I’ll be an astronaut for free. For beer tasting I’ll pay you. Others are free to make their own choices.

The theory of supply and demand leading to an equilibrium price that we’ve seen work in almost every other field of economics appears not to be working in the UK labour market. Either the theory is wrong or the data is suspect.

If the public sector were offering both higher salaries and better terms and conditions workers in the private sector would have to be either irrational, ignorant or keen to sacrifice their own narrow self-interest for the good of the share holding classes. Is the Times really asking us to believe that private sector workers are stupid or that market systems do not correctly allocate resources?

Some third year undergrads (who were, actually, otherwise very bright) had – as we had asked (there’s a real, growing fear of numbers in Human Geography as a discipline) – gathered some statistical information for their presentation. Unfortuantely it was all pulled from various news sources which, on closer inspection, most turned out to be quite dubiously reported.

I would, also, love newspapers to be reliable sources. It has, however, got to the point now that when I am teaching first years or reminding other undergraduates about source reliability, newspapers and online news sources are in the ‘unreliable’ category.

As a government accountant, qualified with an ACA, I thought I’d look into a like-for-like comparison for people with the ACA, across the different sectors using ICAEW’s 2009 salary suvey.

No prizes for guessing that government workers’ salaries are at the bottom.

Another great post Ben.

“The swine flu outbreak was a ‘false pandemic’ driven by drug companies that stood to make billions of pounds from a worldwide scare, a leading health expert has claimed.

Wolfgang Wodarg, head of health at the Council of Europe, accused the makers of flu drugs and vaccines of influencing the World Health Organisation’s decision to declare a pandemic.

This led to the pharmaceutical firms ensuring ‘enormous gains’, while countries, including the UK, ‘squandered’ their meagre health budgets, with millions being vaccinated against a relatively mild disease.”

www.dailymail.co.uk/news/article-1242147/The-false-pandemic-Drug-firms-cashed-scare-swine-flu-claims-Euro-health-chief.html

Would Ben like to comment?

So what? It’s only a problem if (a) one group of people is being abused – which is why we have employee protections, minimum wages, union representation etc – or (b) the other group is extracting an excessively good deal for themselves, at the expense of the taxpayer (in the case of the public sector) or shareholders (in the case of the private sector).

How do you extract an excessively good deal? You have the agency problem, where managers extract economic rent to reward themselves at the expense of shareholders. And you have the risk of some of the more extreme unions or trade bodies going beyond the legitimate protection of their members to extract economic rent through the threat of damaging industrial action.

I’ve worked in both the public and the private sector. I don’t personally care what either pays, so long as it is a reasonable market rate for the role. Where I start to worry is where I think I’m being ripped off by groups of people who are using a position of power to their own benefit. And this applies in private and public sectors. Hence the anger over bankers’ bonuses, MPs’ expenses, and some types of industrial action (sorry union people, but you know who I’m talking about).

But I ramble…

I also took this article to pieces on the TUC’s Touchstone blog on the day it was published. www.touchstoneblog.org.uk/2010/01/public-sector-pay-some-unstraight-statistics-from-the-sunday-times/

Frankly I expect this kind of stuff from the Sunday Times, but the so-called vindication by Straight Statistics made me cross. This is why I invited Nigel Hawkes to reply – which he did in the comments to that piece.

I then followed that up as five days later Straight Statistics said that they did niot vindicate the analysis.

But there are still important questions for Straight Statistics as I say at www.touchstoneblog.org.uk/2010/01/straight-statistics-change-their-tune-as-ben-goldacre-joins-the-criticism-of-the-sunday-times/.

The salient facts about public sector pay are:

1) median hourly pay is higher in the public sector. This is largely due to the fact that it employs lots of graduates. This has been true since at least 1984. It is not new. The public sector has become more dominated by graduates over time as more such workers have been recruited (eg teachers, doctors) and low paid workers have been contracted out to the private sector EG clearners ansd canteen staff)

2) graduates in the public sector earn less on average than graduates in the private sector (this is wages, not wider conditions).

3)lower skilled workers earn more on average in the public sector. (The split point is A-levels where those with A-levels as their highest qualification earn the same.) This is partly due to the fact that the public sector (rightly) does not generally employ people on the minimum wage and the worst conditions.

I won’t give all the references but I’ve been exploring this issue (using straight statistics) in a number of Touchstone posts, precisely because of the endless publication of pieces like that in the Sunday Times.

The same article could be used to point out that the private sector drives down wages while increasing working hours. Good to see the papers stinking to their principles though.

None of these are jobs you find in the public sector”

Really? What about cashiers in the Post Office?

Mind you, public sector in Australia includes Federal, State, and local government – I wonder what is included in the new UK (new since I left in ’69 ….).