Public-private sector pay differentials in a devolved Scotland

Public-PRIVATE Pay Differentials

these sectors may go some way in explaining a higher female public sector pay
nationwide. In addition, there is relatively more regional independence in wage
bargaining for traditional female occupations such as local governments and
education.

Alternatively, if one is prepared to believe that the Scottish labour market
achieves an efficient allocation of labour, part of the male wage premium found in
the private sector may be ascribed to the existence of fringe benefits in the public
sector which are not captured in average hourly wages such as higher job security,
holidays and pension entitlements. Again, this seems to be different for women
and also implies a different fringe benefit culture north of the border. Theoretically,
the latter does not seem unreasonable as non-pecuniary benefits may well be a
means to increase the attractiveness of Scottish public sector jobs in the absence
of full pay autonomy. Yet, even some of these are still determined by Westminster
such as the Civil Service pensions scheme, making this explanation less compelling.

However, even if the Scottish Executive were granted the necessary
independence in public sector wage setting it is conceivable that it would only
ever want to pay market rates in occupations where it is not competing with other
UK labour markets. Hence, incentives to set public sector earnings in line with
private sector pay may be very small. A pay reform that grants more autonomy to
regions may therefore not necessarily remove public sector premiums but runs the
risk of introducing new trade-offs between regional efficiency, equity, and national
competitiveness. However, given the results in this paper, public sector pay in
Scotland may after all not be as far off market rates as suggested by other studies.

References

Belman, Dale, and John Heywood (1993), “Job attributes and federal wage differentials”,
Industrial Relations 32: 148-157.

Bender, Keith (1998), “The Central government-private sector wage differential”, Journal of
Economic Surveys 12: 177-220.

Bender, Keith (2003), “Examining equality between public - and private sector wage
distributions”, Economic Inquiry 41: 62-79.

Bender, Keith, and Robert Elliott (1999), “Relative earnings in the UK public-sector: The
importance of pay reform on pay structure”, in R. Elliott, C. Lucifora, and D. Meurs, eds.,
Public Sector Pay Determination in the European Union, London, Macmillan.

Booth, Alison L., Marco Francesconi, and Jeff Frank (2003), “A sticky floors model of
promotion, pay, and gender”, European Economic Review 47: 295-322.

Co, Catherine Y., Ira N. Gang, and Myeong-Su Yun (1999), “Switching models with self-
selection: Self-employment in Hungary”, Review of Development Studies (forthcoming).

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