The pattern and evolution of geographical wage differentials in the public and private sectors in Great Britain

Abstract

Government policy on the nature of wage bargaining in the public sector can have important implications for the provision of public services. Using the New Earnings Survey, the Labour Force Survey and the British Household Panel Survey, we examine the size and evolution of public-private sector wage differentials across geographical areas within the UK and over time. Public sector bargaining structures have led to historically high wage premia, although these premia are declining over time. In high-cost low-amenity areas, such as the south-east of England, the public sector underpays relative to the private sector, therefore creating problems in recruitment to and provision of public services. Public sector labour markets are around 40 per cent as responsive to area differences in amenities and costs as are private sector labour markets. Differences in the degree of spatial variation between sectors are likely to remain, leading to persistent problems for the delivery of public services in some parts of the UK. Reform of public sector pay structures is likely to be costly, and so other non-pay policies need to be considered to increase the attractiveness of public sector jobs.