WHAT HAS BEEN HAPPENING TO PAY IN THE PUBLIC SERVICE SECTOR OF THE BRITISH ECONOMY? DEVELOPMENTS OVER THE PERIOD FROM 1970 TO 1992

1. In research work commissioned by the Treasury, Professor Elliott of Aberdeen University has been working on an in-depth analysis of public sector pay trends over the last 20 years. He completed this work last year and an article summarising his findings has now been published as a Treasury Occasional Paper, No 3.

2. The purpose of this study was to provide a rigorous and detailed analysis in both real and relative terms of changes in the pay of employees in the public service sector of the British economy, by combining data on earnings taken from a one percent sample of all employees (the new Earnings Survey) conducted annually in April since 1970, with data on the wage settlements awarded over the same period.

Broad conclusions

3. The paper helps to analyse and clarify developments over the period. Not surprisingly, Professor Elliott identifies variations over time and variations between different public sector groups. Differences in the growth of real earnings of public service employees over the period 1970-92 largely reflect differences in pay settlements.

4. He concludes that the pay of most public sector groups, relative to the private sector, declined in the 1980s. This decline was arrested in 1991 and 1992 as the onset of recession resulted in the expected counter-cyclical pattern of relative growth in public sector pay.

5. The research indicates that groups who have stayed to the fore in earnings growth include those whose pay is determined by reference to the recommendations of Pay Review Bodies. Women show relatively strong real earnings growth across different groups partly because of equal pay legislation but also reflecting structural changes in working patterns.

Data used in the study

6. The earnings data draws on the New Earnings Survey (NES) the results of which are published annually by the Department of Employment. It also includes previously unpublished detail extracted from the New Earnings Survey database.

7. The settlements data has been compiled from a number of sources but is presented so that settlements are recorded under the year in which they first impact on the NES earnings data; this allows for an assessment of the impact of settlements on earnings and for the calculation of 'drift'.

8. The paper gives an alternative presentation of the data. This does not necessarily supersede or invalidate existing figures.

Nature of the exercise

9. Professor Elliott's study is a piece of academic research intended to give a better-quantified understanding of the historical development of public sector pay trends.

10. In addition to analysing the real earnings of public service employees over the period from April 1970 to 1992, it is also analysed over shorter periods, most notably between 1980 or 1981 and 1992. Over the shorter period, it was possible to trace the real earnings growth of a larger number of groups of employees. One of the reasons for the rapid growth in real earnings of some groups over this period was that at the start they received "catching-up" pay increases under the Standing Commission on Pay Comparability, the 'Clegg Inquiry', while in some other cases they received arbitration awards which were designed to achieve a similar objective. However other groups had received their 'catching-up' awards, all of which were designed to remove the anomalies of the preceding incomes policies, before April 1980. There are, therefore, some differences between the rates of growth of earnings of different groups in the twelve months following April 1980.

11. Over the eleven year period from April 1981, several major groups of public service workers saw their real earnings grow by more than 33 per cent. Male and female hospital doctors, female nurses and midwives, male and female police sergeants and constables and male and female primary and secondary teachers were the most prominent among these. In contrast the real earnings of most administrative and manual workers in local authorities and clerks and executives in the civil service grew by around 20 per cent while the real earnings of male university academics grew by less than 10 per cent.

12. One of the major explanations for the disparities in the rates of growth of real earnings was the cumulative effect of differences in the average size of pay settlements awarded to the different groups. These resulted in substantial differences in the rates at which salaries and ultimately earnings increased over the period. Over the twenty two year period between April 1970 and April 1992 the average annual size of settlement in nominal terms ranged between the 9 per cent received by administrative and clerical workers in the NHS to the 13 per cent received by Nurses. The average size of settlements was lower in the 1980s than in the 1970s, and there was also greater dispersion around this average.

13. The cumulative effect of the difference in settlement size is reflected in the differences in the rates at which the basic salaries of different groups of public service workers advanced in real terms over the period. In the twenty two years to April 1992, the basic salaries of nurses increased on average by 62 per cent in real terms while those of the Federated ranks in the Police Service increased by 76 per cent. The basic salaries of hospital doctors increased by 22 per cent and those of primary and secondary teachers by 17 per cent in real terms.

14. The study also looked at the relative pay of employees in public services over the period from the early 1970's to 1992. Where similar jobs were performed in the private service and manufacturing sectors of the economy, the study mapped changes in the relative pay of both sets of employees.

Enquiries

15. In the course of his work, Professor Elliott has assembled databases of earnings and settlements for the main public sector occupations. The Treasury is making copies of these databases (for 1970-92) generally available on demand. Copies of the Occasional Paper are available from: The Public Enquiries Unit, 110/2 Treasury Chambers, Parliament Street, London SW1P 3AG, price 2.50 pounds.