NEF - Why the public sector can lead on decent wages

9 Dec 2013 11:24 AM

Blog posted by: Helen Kersley (December 9, 2013)

Recognition of the challenge of low and falling pay for ordinary workers in the British economy is widespread – politicians, journalists, commentators and communities are all talking about the living standards crisis. But having now recognised it, the obvious question is what can we do about it?

In research published today nef makes the case for how one top employer in the UK is well-placed to lead the way out of the low pay crisis. That employer - in reality a group of employers and commissioning authorities - is the public sector. Why? Here are 3 reasons

1. There are around half a million public sector workers – including one-quarter of all local government employees – whose earnings are too low to live on.  That means public sector organisations are directly contributing to the low pay problem and need to act to put their own houses in order.
2. Add at least a further half a million low-paid staff who deliver our public services via contracts with private companies. This is down to the public sector as commissioner and private companies as suppliers who are co-responsible for reducing the benchmarks of pay for crucial roles in society and permitting poor working standards such as zero hours contracts. Public sector commissioners can demand living wages and decent terms of employment through all their contractual relations with firms.  A number of local authorities, such as Islington, are already leading the way, insisting on contractors paying their staff the living wage and holding them to account on it.
3. Policymakers can set a framework of legislation and regulation to ensure that taxpayer-funded posts – whether in public sector organisations or private companies delivering public services - are adequately paid.  An inclusive set of progressive policies to guide the labour market is in society’s best interests. Wages are the backbone of economic health.  Fair wage resolutions and recognition of international standards of employment were the norm from the late nineteenth century to the 1980s. They can be reinstated.

There are those who will say that looking to the public sector as a leader is naive, or out-moded. And how can we argue for better public service wages in these straightened times?

Part of the answer is to be clear that public sector and public service workers are not in a privileged position with respect to their pay as we show in the report, particularly when the effect of the Coalition Government’s 5 year programme of pay freeze and cap is taken into account. More broadly, the central role of wages in the economy is being increasingly demonstrated and discussed, providing evidence for the imperative for setting decent wages across all sectors of the economy. Finally, studies by the Institute of Fiscal Studies and the Resolution Foundation suggest that the consequence of supporting low wages with top-ups paid out of the public purse are likely to be negative overall, lending further weight to the case for paying decent wages at the outset.   

Part of the purpose of this research, carried out with UNISON, was to re-emphasise the inter-dependence of the public and private sectors.  We have become used to a rhetorical diet of “public sector bad, private sector good”.  This is not just damaging to morale for public service workers, it represents a dangerously simplistic view of real value creation.  Public education, health-care, support services and infrastructure lay the ground for private sector and overall economic success as well as societal well-being.  More particularly, public spending on wages as well as investment supports private sector activity through the fiscal multiplier which latest research, including from the IMF, suggests has a more powerful impact on the health of the economy than previously thought.

Ultimately it is hard to see how low and falling wages can be tackled without emboldening the public sector – encompassing public employers, commissioners and policy makers - to restore the dignity and value of work.  Historically public service employment has played a progressive role, with fairer pay distribution, solidaristic wage bargaining and a track record in progressing gender equality. But now, benchmarking of pay to unregulated norms of wage-cutting - seen in public services as outsourcing has gathered pace - has embedded a race to the bottom for millions of workers, including in vital public services.

As a result nothing less than a counter-cultural response is needed, to raise the benchmark to a better standard and restore the dignity of work.