I have been back and forth on the issue of whether the public sector has it better or worse than the private sector (at average wage levels, not the high end).
Whatever it means, the median wage has been consistently higher in the public sector. How exactly to measure this and what it means overall is difficult to clarify.
During the debate about the additional cost of pensions to the Treasury rising. The note by Stephanie Flanders brings some fascinating addtional thinking to the debate. Firstly, the cost to the Treasury is not the target: it can be reduced by increasing the size of the civil service, for example. The important piece appears to be the promises we are making to the public sector and the cost to the country of making them.
What the OBR is saying is that every year we, as taxpayers, are giving the five million or so people who work in the public sector rock-solid guarantees of future pension payments which, on the open market, would cost them at least £26bn a year.
In exchange for those promises, the individuals themselves are contributing £4.4bn, and their government employers are contributing £12.6bn – meaning a net subsidy by the Treasury of at least £10bn a year.
Ask the average employee in the public sector how much his pension is worth, he or she is unlikely to say that it is worth another 30-40% of their gross salary. But that is almost certainly what it would cost a private-sector employer to offer a pension on the same terms.
That does seem amazingly generous given the number of ways in which the environment might get more challenging: fewer people in work means the non-funded pension system will creak as in France; higher interest rates may require greater subsidy.
The plural of anecdote is not data, of course, but anecdotally I’m hearkening to the question of how apparently over-stretched public-sector employees already deal with the effects of increasing unemployment now and the nature of their actual wage for what they do. There are undoubtedly people having meetings about past meetings which couldn’t decide the coffee-and-biscuit budget the first time (the electrocardiogram unit at a well-known hospital), but there are also people like Kal the Trauma Queen, an ambulanceman up in Edinburgh who cleans up time-wasting ingrate drunks in filthy flats, or mashed bags of what used to be a human being, and balances killing or saving someone if he thromobolyses them in the ambulance. His workload is increased in economic downturns. The argument is that his pension should compensate him for doing society’s dirtier, riskier work at a comparatively low wage.
So the question needs to be not “how do we save money on public sector pensions?” but “which public sector pensions can we address given that some public sector jobs are necessary by any measure and poorly-paid?”
But we get back to Adam Smith in The Wealth of nations: “We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks, which they have already acquired. … In the long run, the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”
I’d hazard a guess that it is politically convenient to hit public-sector pensions en masse because some well-paid people do benefit a great deal from them, but millions of poor-to-moderately well paid people also at least have something on which they might rely; the losers, in public pension cuts, will be those who can least afford the losses, because the well-paid upper civil servants have less immediacy of need. Cutting their pensions by 5 or 10% will look good in the papers and cause them no real harm.
I completely agree that there should be some means testing / impact assessment rather than cutting all pension, I guess one issue I am concerned about is a long-term one: we won’t be able to fund the promises we are making to public sector workers as there won’t be enough new workers paying in to schemes to fund those who have retired.
Secondly, I tend to agree with the point in the article that the net pension payments are essentially a large semi-hidden subsidy (c. £10bn) to public sector workers: shouldn’t we make this clear in their job description and pay details, rather than after the fact. Then we can start comparing like with like (and as you say, not anecdata). So the argument that the pension should compensate for a lower wage seems difficult. Let’s be open up front about this trade-off, or offer higher salaries with lower pensions for the same job. Why should an ambulanceman be forced to save for his or her future when a member of the RAC squad does not (imperfect analogy, I agree)?
And finally, having lost one private sector pension already in my life (Equitable Life), I get annoyed at the occasional “we work hard at jobs no-one wants to do for no money” call from public sector unions, because the pension issue does substantially affect the balance of the argument (e.g. a 15-40% hike in gross pay equivalent for the public sector). That most public sector workers don’t understand this is possible, but certainly many civil servants I’ve dealt with have chosen jobs later in their career to maximise pension contributions and eventual payout.
And there’s more on this from Robert Peston.