Nov 14 2009
Jobs and wages
Several papers and comentators have noticed the very different path of public sector and private sector wages. Public sector pay is rising three times as quickly as private sector pay.
In the private sector many companies are cutting earnings, and in some cases cutting pay. Employees and managers have reached agreement that they would like to keep more jobs, and accept shorter hours or worse remuneration to do so. In competitive businesses, especially in cut throat manufacturing where the Chinese and other overseas competition is most intense, there is no choice but to cut costs. The UK is showing a new and necessary flexibility in the labour market. Sensible companies that have to cut employment costs do so fairly, making management shoulder their share of the pain as well as factory workers. Executive numbers are being slimmed and executives asked to accept less pay or no bonus, just as the shop floor is going through lean times.
The conduct of parts of the public sector is atogether different. Where the private sector is controlling cost, the public sector is adding it. Where the private sector reaches difficult agreements without strikes, the public sector is strike prone. Where most in a private company see the need to be reasonable to survive, some in the public sector go on expanding cost as if there is no problem.
Some in the public sector get it. We can cut the costs of running our offices and our services. In recent days I met the Leader of Windsor Unitary Council, who will be cutting their Council Tax next year. Another local Council has embarked on a cost reduction programme amongst the high level executive jobs that have built up over the years. Looking at the BBC’s long list of highly paid executives, there seemed to be plenty of scope to do something similar there to reduce the burden on the licence payer – and that list of highly paid jobs was far from comprehensive.
Public sector managers who are not starting on cost reduction and efficiency programmes are irresponsible. The day of reckoning cannot be that far away, given the huge sums that are being borrowed. If we are to avoid high interest rates and other signs of financial distress, we need to take prompt action to control costs. If the public sector would just match the performance of the private sector in keeping earnings and wage growth down, we will be able to keep more jobs and services.
Yesterday when I wrote about possible futures or the world economy many of you wrote back about the UK economy. I did not mention it specifically in my review, as it is an extreme case of an economy borrowing too much. You cannot solve a crisis brought on by borrowing too much by borrowing more. The UK’s experience is likely to be disappointing compared to the world average when it comes to inflation, output and efficiency in the months ahead, because the UK is pursuing extreme short term policies which leave it at risk. One day markets are likely to have their revenge, as they did in lesser crises of over borrowing in the 1970s.
17 Responses to “Jobs and wages”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
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“The UK’s experience is likely to be disappointing compared to the world average when it comes to inflation, output and efficiency in the months ahead, because the UK is pursuing extreme short term policies which leave it at risk.”
I do agree John, seems my rosy glow was indeed just a passing fad. Frankly I avoid wine mostly. QE is an extremely stupid policy for the obvious reasons, and as we all know Money doesn’t disappear from the system so it can only lead to inflation. Unless the Bank of England is very careful that is. If the economy starts to get going again then really that QE money should be burnt. However who in their right mind burns money? Indeed hasn’t it be “invested”. I don’t really like this notion of a good bank and a bad bank either, its risky to attempt to buy our way out of trouble in this way. I didn’t do economics in fact I haven’t read much about economics either, so if this is as plain as day to me (a layman in this respect) you have to wonder what the guys who did indeed study this think. Seems you know the simple truth as I do. Anyone who runs a home budget would recognise the real danger QE represents in terms of inflation.
I know that you’re not a London MP but did you see the long list of highly paid civilian staff in the Metropolitan Police?
Apparently there are nearly twice as many civilian staff with pay and status equivalent to the rank of Commander and above than there are actual serving officers.
Two me this raises two main questions
1. What on earth are they all doing?
2. Does the Thames Valley Police (in whose area I live) employ similar numbers of highly paid civilians?
I don’t begrudge the part of my Council Tax that goes towards policing, but I want it spent in terms of “feet on the ground in the streets”, not “bums on chairs away from sight” !!
“Several papers and commentators have noticed the very different path of public sector and private sector wages. Public sector pay is rising three times as quickly as private sector pay.”
Indeed the public sector is being protected from inflation, and as a result is insulated from the mess this government is making of our national finances.
“In the private sector many companies are cutting earnings, and in some cases cutting pay. ”
So any fresh return of inflation would hit the private sector employees hard. So again Labour is creating a two class state, in which those with “government” jobs are protected from the damage that this government is doing.
The sooner we have a fair minded and pro-private sector government in power the better. As always I come here to get a sensible view, that I know from experience I can trust to tell it like it is.
Thanks as always John.
Ross.
The first thing to remember with public services is only to have those that are absolutely necessary. There are plenty of examples in the Guardian jobs section that are not required, and whole “industries” in the public sector that the vast majority of us really don’t want, and society doesn’t need.
Once these wasteful functions have been deleted, the remaining staff can be given pay, pensions and working conditions that are comparable with the equivalent private sector jobs. Those who claim that public sector perks are compensation for the lower pay will discover in many cases that the inexorable rise of public sector pay over the last twelve years has removed that gap.
Public sector staff will always have safer jobs than those in the private sector – the fundamental administrative jobs are always required, and will need expanding. For example, in a recession, it is inevitable that more people will be required to staff Job Centres. So, logically, those who are in the basic core staff during economic growth will have safer jobs. That just goes with the territory.
We don’t need an army of parasites being paid from the public purse just for the Government to be able to claim lower unemployment rates. If the Government could demonstrate how prudent they had been during times of growth, we wouldn’t mind the pain of funding the extra staff during recession.
It was obvious that Mr Browns rhetoric about Britains position in the run-up to the recession was nonsense even as he made the speech. His behaviour during the down-turn has only proved that the seriousness of the problem (when compared with other countries) is a direct function of his policies.
Even within the private sector, the job market is far less flexible than it should be.
My clients are largely small manufacturers, and I have seen the different ways that they have struggled to survive. Not all have succeeded.
One company took the view that making staff redundant had such an onerous legal overhead, it was better to start with more redundancies than they required. This led to the remaining staff being overworked, the customers being unhappy with the resulting poor service, and more people unemployed for longer.
Another similar company involved the staff in the decision, who preferred to go on a 3-4 day week. This saved the company money on the manufacturing staff wages, but cost them unnecessary money in the extra administration to manage it. As a result, they are less able to recover quickly because their reserves have been wasted.
All the red tape intended to protect staff from the nasty employers has had exactly the opposite effect at the worst time. Legislation is never a substitute for good employer/employee relationships, and the Labour parties version seems to work against everybodies best interest.
There is no hope of the public sector behaving responsibly when Brown and Labour continue to spend, borrowed or freshly printed money so carelessly and recklessly. Public sector employees could be forgiven for thinking that they were actually helping the economy by receiving higher wages and salaries if they believe the nonsense that Brown promulgates on a regular basis. The Conservatives are too quiet for my liking and when they do put up a spokesperson they don’t put across a strong or clear message. After all this time you don’t know how to deal with Labour. They should be an easy target but in most interviews your shadow spokesperson is unimpressive. If you want to form the next government your colleagues need to sharpen up their performance or be replaced. I want to see Labour routed at the next election but I am not impressed by the calibre of the Conservative shadow team.
I agree.
Let’s hope that the public sector cuts don’t affect frontline staff such as road sweepers or refuse collectors. The tendency is usually for irked govt officials to say, “You want cuts ? OK. We’ll give you cuts !” and then chop the very things we want them to keep and keep the very things we want them to chop.
I’m dismayed at how shabby our town looks. We pay a huge amount in council tax. After all, there shouldn’t be a shortage of unskilled labour to tidy it up – especially when one considers that we were promised that offenders would be undertaking Community Service when we were told they wouldn’t be going to prison.
Government simply doesn’t offer value for money. If it did we wouldn’t have been half so enthusiastic about following the MPs’ expenses scandals. We’d have gladly paid them twice as much.
StevenL Reply:
November 14th, 2009 at 9:52 pm
The thing about saying ‘frontline staff’ or ‘core services’ is that these are terms that people construe to mean different things. To some people ‘core services’ means health, education and policing only. Other people think it means statutory services. I’ve heard people describe ‘frontline services’ as any public sector worker that interfaces with the public. Then you have admin people and suchlike that work in things considered ‘core services’ that consider themselves ‘frontline staff’.
What exactluy constitutes a ‘frontline’ or a ‘core’ service?
Reply: A front line service is to some extent in the eye of the beholder. Most would agree that teachers, nurses, doctors are essential front line employees, whilst many quango administrators are not.
We will reach a Thatcher/miners situation over the vastly inflated state payroll, executive and operations at some point not too far away. Cynics, and I am a fully paid up member, have felt for years that NuLabour was flooding the country with immigrants and increasing the client state purely for political ends. Virtually every day you can read of lunatic situations involving political correctness and public bodies – quite simply the lunatics have taken over the asylum. Unfortunately DC is no Mrs. T. He is jeopardising his arrival at No.10 by not going for broke with strong, country reforming policies. You may be earmarked for a senior cabinet post, but the fact that you are not on the front bench speaks volumes.
An economics professor at a local college made a statement that he had never failed a single student before but had once failed an entire class.
That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on socialism. All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.
After the first test, the grades were averaged and everyone got a B.
The students who studied hard were upset and the students who studied little were happy.
As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy.
When the 3rd test rolled around, the average was an F.
The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes the reward away, no one will try or want to succeed.
Could not be any simpler than that.
What a profound short little paragraph that says it all
“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for,that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”
~ Dr. Adrian Rogers, 1931
“Several papers and comentators have noticed the very different path of public sector and private sector wages. Public sector pay is rising three times as quickly as private sector pay.
….
The conduct of parts of the public sector is atogether different. Where the private sector is controlling cost, the public sector is adding it. Where the private sector reaches difficult agreements without strikes, the public sector is strike prone. Where most in a private company see the need to be reasonable to survive, some in the public sector go on expanding cost as if there is no problem.”
The focus of your note is economic rather than political, of which there are two points that I would like to make.
Firstly, I predict that there is going to be something like a five seat majority at the next election, most probably in favour of New Labour. This is simply on the basis that people in the Public Sector don’t get it.
A couple of weeks ago on question time, a youth rhetorically asked why public sector workers should suffer any wage cuts at all; he supported his argument that they shouldn’t, by saying that the private sector banks caused the current financial mess, and as such, any cuts should stay within the private sector. Now, I appreciate that this argument is entirely specious, although the advocate was most probably being naive rather than disingenuous. But the naif did express a commonly held view amongst people who cannot see beyond their public sector positions. For public sector people, if they haven’t lost their jobs; nothing has changed over the last twenty four months. Loans may be harder to come by and they may have had to feign sympathy for other peoples job losses etc but I don’t believe that the vast majority of these people understand the severity of the situation.
The second political point that I want to make is perhaps more serious. That is, these policies were always devisive but in the middle of a recession they are resuling in sectarianism. People in the private sector are beginning to hate public sector workers. In your blog (JW) you sometimes touch upon this issue. I recall a post of yours where you made the point that Tesco workers were key workers; without them we wouldn’t have any food. However, the simmering disdain and contemptof private sector workers to public sector one is almost boiling over to hatred. The last time this happened was during the fuel protest strike; private sector workers were worried about whether or not they would be able to get to work and the supermarket whilst public sector workers (offensively described as key workers) were allowed to jump the queue at the few petrol stations that were working. No amount of propaganda from Casualty, London’s Burning or The Bill, could sugar this particular pill.
The Public Sector must be cut very fast.
Why should people who are actually earning the country money pay for the plump office officials and their fat cat pensions? It is a matter of principle really.
Secondly, it is a matter of economics. To pay for all these numpties, you have to increase taxes. That means we all have less to spend and the economy will slow. Also (see above) there is less incentive.
Thirdly, the numpties get in the way. I have just been reading about a London School, run by Civitas, where the teachers actually teach, the parents actually help, and the children are happy. The school is independent of government, naturally. Without the interference of a million interferers, professionals so often do a fantastic job.
The problem is this: who can rid us of this multitude of pseudo experts?
Even Mrs Thatcher couldn’t.
Do you know what? I think that it is in the modern psyche to obey and be a desk-locked numpty. Isn’t that what State Education is all about?
Could you explain by what you mean in the term ‘flexibility in the labour market’ John? More often than not it just means the ability to be able to hire and fire at will paying minimum wages to the lowest workers. Competing with India and China on labour costs is a dead end as these countries face low cost labour competition themselves, who all face competition from technologically advanced countries like America and Japan even undercutting the lowest labour costs. We will never win the race to the bottom and should have no intentions of taking part.
Reply: The kind of flexibility private manufacturing has shown by job sharing and accepting no pay rises during a severe downturn. Realistic attitudes by bnoth management and staff has saved more factories and jobs here.
Well if you look at the Audit Commission blogsite you will see reports that David Walker of the Audit Commission is attending conferences paid for by the tax payer arguing against localism. Isn’t this a direct interference by a quango trying to influence the outcome of a democratic process?
Is it not possible to link public sector to the private sector in terms of pay conditions fairly and objectively etc.
The problem will be the ‘top management’ seek private sector salaries recent examples being, the BBC, im sure there are many more.
I think public sector salaries and pension benefits should be capped for the ‘top management’.All MP’s, Lords , B of E, Treasury Staff,FSA etc should have their salaries and pensions directly linked to the long term performance of the economy, they must not be index linked and insulated out of touch.
MP’s pay should be linked for example to average salaries.
Why do we need so many and get so poor a return or negative return. Surely failures deserve an appropriate response.
We can safely leave the private sector to its own devices. Eventually, employers realise that the huge numbers of unempoyed are very keen to get back into work and will accept lower remuneration than those currently in work. This is generally the last thing to happen coming out of a recession, which is why unemployment is a lagging indicator. It seems to be happening earlier this time, but it may be a tempoary effect due to easy money. We shall see.
Within the next parliament, the annual public sector payroll cost needs to be reduced by at least 20%, maybe more. You can balance that out between job losses and pay cuts.