The Consequences of the Decline in Public Sector Pay in Britain: A Little Bit of Evidence

Abstract

Following the fall in overall net public investment, the relative pay of most public sector workers in the United Kingdom declined sharply after the mid-1970s. For example, the relative pay of male teachers fell by over 10 percentage points from the late 1970s to the late 1980s. So has this generated a fall in quality? Using age 10/11 test score percentile positions as an indicator, we find that men entering non-manual public sector occupations in the early 1990s had a significantly lower test score position than those entering in the late 1970s. No such falls were exhibited by women. A casual glance at the newspapers reveals that it is becoming increasingly difficult to recruit certain types of public sector workers. For example, shortages of teachers and nurses are currently receiving a great deal of press attention. One of the reasons for this is the significant decline in the relative pay of most occupational groups in the public sector which we document in what follows. We also present a small piece of evidence on a further and more contentious question, namely have these significant reductions in relative pay in the public sector generated similar significant reductions in relative quality? The evidence we have is consistent with an affirmative answer to this question for men but not for women. 1. The Decline of the Public Sector In the mid-1970s, Net Public Investment in the United Kingdom began falling dramatically as a proportion of GDP. As we can see from Table 1, in the period 1963‐76, it was no less than 5.9% of GDP, on average. By 1980‐85, Net Public Investment had fallen to 1.7% of GDP and it has remained at a very low level ever since. It is, however, planned to rise from 2001. These figures are reflected in the significant decline of relative pay in most areas of the public sector which began in the late 1970s. While there is, of course, no causal relationship between public investment and public sector pay, the movements in both reflect the priorities of those in charge of the public finances. To obtain a picture of what has happened we divide the public sector into three broad groups. The first consists of most of the non-manual sectors (eg civil servants, doctors, teachers, nurses etc.) but excludes the police, fire service, prison service and judges who are included in the second group. The third group includes manual sectors (eg post, railways etc). The division of non-manual workers into two groups reflects their different treatment in the 1980s. Each of these broad