Lies, Damned Lies and Public-Private Pay Comparisons

BooksThe Irish Times comments on the recent report from the Central Statistics Office, stating that public sector wages are 47.6% higher than the private sector. The comparison is entirely meaningless.

Unfortunately, they are right about one thing. Public sector workers are paid far too much, and it’s in danger of bankrupting our state.

But this particular data from the CSO doesn’t shed light on the problem. Without knowing the productivity of the respective workers, we can’t possibly know whether they are good value for money or not.

Of course, the reality is that generosity from governments flush with cash during the boom established working conditions, wages and retirement benefits which are entirely unsustainable. Hence the budget crisis now, which forces us to resort to tax increases.

But public workers are employed in many industries with high qualifications. The report goes on to remind us that over half (52.8%) of public sector workers have a third level qualification, as opposed to just under a third (31.9%) of all private sector employees. But the Irish Times blithely ignores this truth.

Instead, they just publicise the raw pay comparison, which is entirely disingenuous without knowing anything about the composition and productivity of those workers. They ignore the differences in proportion of workers composed by professionals (46.4% public versus 13.9% private), or of sales and other low-wage jobs (8.1% public versus 24.5% private).

If we are discussing the differences between public and private pay conditions, wages also need to be risk-adjusted. While private jobs are constantly being lost in the current economic environment, employment is considerably more secure in the public sector. Job security is very valuable in today’s world. There is also the risk-adjusted value of retirement benefits.

Unfortunately, the difficulties in making a valid comparison (except in the case of specific industries) will always prevent real determination of whether public remuneration levels are too generous.

The only conditions which would ensure this was where public industries – such as energy, health and education – actually competed for business in a market environment, subject to the profit motive which ensures efficiency and fair prices.

The one thing that is known for certain is that money has been poured into industries like health over many years without a significant improvement in outcome. Public sector pay and conditions are meanwhile determined by politically powerful trade unions.

But these raw figures don’t communicate anything. Only the market can ensure proper value for money in services currently provided by the state. As long as industries are competitive, you are not being ripped off. That will simply never be said of union-dominated public service.

© The Free Marketeer 2009

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One Response to Lies, Damned Lies and Public-Private Pay Comparisons

  1. What’s in danger of bankrupting our state is the fact that the government signed the taxpayer up to cover the open-ended liabilities of the banking sector. This is the biggest transfer of risk between the private sector to the public sector in the state’s history and will end up being the biggest transfer of wealth from the working class to the richest people in this society.
    The relative imbalance in private and public pay is dwarfed by this commitment and the likelihood that assets will continue to deteriorate in a deflationary cycle exacerbated by further cutbacks to public sector consumption.

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