Not just another drop in the ocean

Duncan criticises the economics of the proposed public sector pay freeze. Nigel criticises the equity. I’m inclined to criticise the politics.

MPs got a 2.3% pay rise this year. Local Government workers have been offered 0.5%. Already, that doesn’t look terribly good given the headlines of recent months. I appreciate many private sector workers are suffering badly from the recession and high public sector pay increases would anger them. At the same time, public sector pay is obviously less likely to be cyclical, and indeed so it should be. When inflation was roaring up towards 5% at the end of the boom, we were told to accept 2.8% and shut up about it, to help the economy control inflation. I did wonder at the time whether if deflation materialised we would get a huge pay boost to help crank it back up. I rather assumed not and have been proved right – you have to be a banker for the Government to accept that logic.

Steve Bundred at the Audit Commission, who was the first to float the pay freeze as a ‘pain-free’ way of tackling the deficit, is 67th on the Taxpayers’ Alliance list of public sector fat cats, with a salary of £245,000. If you want to freeze my salary at £245,000, Steve, I’m more than happy for you to do that. You would have to double it and then triple it and then add a bit more first, though. Even so, a pay freeze might annoy me at a time when everything I buy is getting more expensive, but it wouldn’t cause me any real hardship – I’m fairly well paid and very frugal. But it makes you look a bit silly, I think, when you are proposing a real terms cut in the income of people earning about 5% of your wedge. Less, in fact, than it costs to live. That’s why it’s often called a ‘cost of living’ increase, Steve.

Alistair Darling, who says that “Public sector pay has obviously got to reflect prevailing conditions and in particular inflation has come way down“, seems not to have noticed that inflation has been above target for 20 months in a row, and indeed for those of us who don’t have mortgages it is still around 3% (slightly more or less depending whether you think the VAT cut is a real fall – I bet wages aren’t increased to compensate when it goes back up!). Alistair Darling earns around £150,000, plus expenses and a small income from a flat he owns in London and rents out since he has a free house in Downing Street. Claiming inflation is low makes you look like a bit of an idiot, Alistair, like when MPs are asked the price of things like a loaf of bread or a pint of milk and turn out not to have the faintest idea. £250 a week, isn’t it?

Of course none of them really mean any of this. Alistair means “Look at me, I’m independent from Gordon and I can prove it. You should vote for me because I’ll be tough on public spending without cutting services”, and Steve means “I know you want to abolish my organisation Mr Cameron, and I know most of your party thinks I’m a Labour stooge, but look at all these helpful things I’m saying, I’m sure we can come to some arrangement”.

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10 responses to “Not just another drop in the ocean

  1. duncanseconomicblog

    Excellent.

  2. Excellent post. Oh how I wish you weren’t anonymous.

    • thelocalgovernmentofficer

      Well, then I probably wouldn’t be so rude about some quite important people, now would I.

  3. “I appreciate many private sector workers are suffering badly from the recession and high public sector pay increases would anger them.”

    Seems fair enough, he anger, as they have to pay the taxes which pay those wages……

    • thelocalgovernmentofficer

      Which is part of why I didn’t say I wanted to see “high” increases. I would be more than happy with the annual rate of inflation. I’d even settle for slightly less than that on the basis that we need economic restraint at this difficult moment, and it can be made up during happier times, if it weren’t for the fact that at any given time it always seems to be the one unique moment in history where we need to be restrained. Funny that.

      I imagine as soon as the good times come back we will once again be told that we need to be paid less and that this is the only way to control inflation. And if we’re really lucky, we’ll get more outsourcing of low-paid jobs to the private sector, and the consequent production of a dodgy statistic saying private sector pay has fallen and public sector pay has gone up. That’s always a favourite.

      I’m told, however, that even if we could do the above it would be ‘pro-cyclical’ and that this is A Bad Thing – something to do with people being more likely to spend a pay rise but save a tax cut. Cleverer people than me assure me that’s not the way to do it, and then they start talking about Ricard, which generally just makes me thirsty.

      The apparent alternative is either to accept gradual collapse of the relative wage in the public sector, leading to jobs being undertaken by the fanatically committed and slightly unhinged, or the underqualified. Or you could reduce overall numbers, but that might risk a genuine conversation about what the state does and doesn’t do, rather than claiming circles would be square if they were more efficient.

  4. Of course, its not “the private sector” as a whole that’s suffering wage cuts. Those at the bottom of the pile are having their wages cut while the bosses and the city boys are getting pay rises.

    It seems to me that to say – “some private sector workers are getting pay cuts and so public sector workers should face them” is getting things the wrong way around. You have to ask why some private sector workers are getting pay cuts. And, I suspect, in many cases it is not because their firm “can’t afford it” but because money is disproportionately going to those at the top and being used to increase dividend/profits and pay back private equity loans etc.

    • thelocalgovernmentofficer

      Although a lot of people at the top are seeing falling total earnings, because those paid by bonuses are seeing a massive collapse. This distorts the averages and, more importantly, is temporary. They will ramp up again as soon as they can get away with it, whereas no doubt public sector wage restraint will be longer-term.

  5. Tim Worstall seems to have got the wrong blog.

    He needs something like “El Officiario do Gobierno Local” if he wants to whine about public sector pay, because he doesn’t live in the UK or pay taxes here. Pardon my Portuguese spelling. It is, as Winston Churchill said, sport to him and death to us.

    It’s not just public sector employees, either; we’ve all been constantly badgered to accept “restraint” for as long as I can remember. But strangely, wage inequality has rocketed. And I reckon it’s not the nurses.

  6. Local Gov Officer, I agree that some getting bonuses are seeing them fall in the short-term. But Goldman Sachs is actually paying out record amounts. Some firms’ top-paid workers are doing very well for themselves _despite the economic crisis that they helped to cause_.

    I agree with the idea that public sector pay needs to be roughly counter-cyclical [i.e. rise by more in bad years than in good] to keep aggregate demand high in a recession. I am just convinced that any “restraint” imposed will be long-term, though 😦 And those that suffer will be those on £15,000 or so – not those on £100k+ [who will get rises to keep them in line with ‘market’ wages].

  7. Pingback: Links of the Week – 10 July 2009 | Ian Cuddy

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