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Is Talk of Public Sector Pay Rubbish?

There has been a lot of comment recently about pay rises for public sector workers, and how they are the biggest wage rises they have had for years.

I think that these rises need to be put into context. And they need to be measured against the way that prices in general have risen during the period that public sector works were suffering from a wage freeze.

If inflation is running at 1% in a year and you got a 1% wage rise then in real terms your wages haven’t grown at all. The basket of goods that cost £100 at the start of the year would cost £101 at the end of the year and your wage rise from £100 to £101 would just cover that rise, so you would in fact be no better off.

But if inflation was 1% for the year in question and you received no wage rise then you would only have £100 at the end of the year to pay for a basket of goods that now cost £101. So in order to manage you would either have to not buy something in the basket or borrow £1 from someone to pay for all of the goods in the basket.

To make matters worse, many public sector workers have seen changes to their pension schemes in recent years which has meant that they have had to pay a higher proportion of a salary that is not increasing to buy the same, or in some cases inferior, pension benefits. That might mean, if we continue with our analogy, that if the pension increase is 5% they now only have £95 to pay for a basket of goods that costs £105.

So they now have to buy even less from the basket, or borrow even more to continue to buy the same as they were buying a year ago.

All that the recent wage increases have done is claw back some of the deficit. Most are still worse off than they were before their wages were frozen.

 

A version of this article appeared in The Daily Record earlier this month.

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