Hume Institute on public service pay

The David Hume Institute has published a paper on ‘Public Sector Remuneration in Scotland’. It includes a series of essays that describe how public sector remuneration is developed and the need for reform in the context of constitutional change. It claims to ‘start the process of careful consideration based on informed, rigorous and objective analysis’. Sadly, the paper falls somewhat short of this laudable objective.

The opening essay sets the tone by repeating, uncritically, many well worn neo-liberal economic myths about public sector pay and the private sector including the infamous crowding out argument, “Higher wages in the public sector makes it more difficult for the private sector to attract workers”. Comparisons are made without a rigorous study of the reasons for differences. For example the authors have not considered differences in the level of outsourcing in their comparisons with South-East England or in other sections.

 

There is little acknowledgement that most expenditure cuts in Scotland have been achieved by cutting the real wages and jobs of public service workers. There is also virtually no analysis of the importance of pay, particularly the low paid, on local economies and the positive role public policy in this area can play. The Scottish Living Wage is barely mentioned.

 

The paper does include some objective analysis from contributors like Alastair Hatchett of IDS. He dispels common myths about private sector bargaining structures highlighting the  mistaken belief in HM Treasury that all private sector companies set pay with reference to local labour markets. Something lost on other contributors who have a fairytale view of bargaining. Probably because few of them have much actual experience!

Other contributors offer reasonably factual essays with some useful analysis. Stephen Boyd’s paper effectively demolishes the case for regional or local pay;

"Consistent with the anti-intellectual zeitgeist, these increasingly orthodox views on public sector remuneration as rehearsed by economists, media commentators and politicians tend to be asserted; rarely are they justified by recourse to evidence. Commentators seldom pause to reflect on whether the concept of ‘typical’ worker in either sector is even appropriate in analytical terms or helpful in developing public policy. Rarer still is consideration of potential negative macroeconomic effects flowing from falling public sector remuneration."

He also deals effectively with that other Neo-Liberal pay myth, performance related pay;

"In most modern workplaces both public and private, characterised by complexity and high levels of interdependence, there is no evidence to show that performance related pay achieves anything beyond incentivising bankers to disguise risk as value creation. On the contrary, research on motivation at work emphatically confirms the 50 year old dictum of psychologist Frederick Herzburg: if you want people to do a good job, give them a good job to do"The essay on reform of pay setting does cover issues that are being discussed with regards Scottish and UK pay bargaining. But again it does so in an academic way without any real understanding of what is happening in the real world. 

The essay on pensions also lacks balance and confuses the Treasury's cash grab with proper negotiation over cost sharing. Those Scottish agreements are ignored probably because the author again has no first hand knowledge.  There is no mention of the £2bn cash surplus every year in the NHS pension scheme. Private sector accounting standards are not the same as real cash liabilities. A fact that anyone with actual experience of pension negotiations in the public and private sector learns very quickly. 

Overall there is little effort at balance and this is reflected in the media promotion by the Institute. In addition to the one-sided economic perspective, there are three papers by employers, including two predictable rants from the CBI and IoD.  The tone of the paper is reflected in the language used. It describes better pay for low paid women workers as an ‘overpayment’ or the 'overpaid' as if this was almost illegal rather than a legitimate public policy choice. This is linked to the extraordinary and misleading claim that the public sector ‘pay freeze’ does not apply to lower paid workers. This will come as something of a surprise to thousands of public sector workers in Scotland!

In summary, while there is a case for considering how public sector remuneration is developed, particularly in the context of constitutional change, the David Hume Institute, with its right wing ideological position, is not the body to offer an objective platform for such a debate.