Originally published 20 March 2002

Research by Professor Andrew Oswald, Professor of Economics at the University of Warwick, says that public sector pay should match the regional differences in private sector pay. This would mean public sector workers in London being paid 50% more than colleagues in Tyneside.

Professor Andrew Oswald and colleagues looked at figures drawn on a sample of 200,000 randomly sampled private-sector workers across the country. In Central and Inner London, private-sector workers earn 54% more than in Tyne and Wear. Outer London workers earn 24% more than those in Tyne and Wear. A full breakdown is given in the table below.

In the private sector, there is enormous variation in pay across regions. This is because conditions, especially in the local cost of living, vary a lot from one part of the country to another. Because the public sector does not allow enough spatial variation in its wage rates, it cannot compete properly for staff in the high-wage places. In London, things are now acute.

Region followed by Wage Relativity

Central & Inner London	53.9%
Outer London	23.6%
Rest of South East	13.2%
West Midlands	5.0%
Greater Manchester	4.5%
West Yorkshire	4.3%
East Anglia	3.5%
Rest of North East	2.2%
East Midlands	1.8%
South West	0.9%
Tyne and Wear	0%
Rest of North West	-0.1%
Rest of West Midlands	-0.8%
Merseyside	-1.4%
Rest of Yorkshire and Humberside	-2.7%
South Yorkshire	3.6%

Table Source: David Blanchflower, Andrew Oswald, & NERA.

Professor Oswald says:

“The rationale for having a regional weighting is straightforward. In places where private sector wages are high, extra money has to be found for teachers’ salaries and other local authority costs. Otherwise it will not be possible to attract staff of the right quality into education. The figures for vacancies show that government funding needs urgently to be made more sensitive to the different costs of living in Docklands, Dundee and Derby. Whether they are in cheap or expensive areas, public servants have to have houses. But tinkering with housing allowances is just running away from the issue: regional compensation should be directly into the pay packet.”

Note for Editors: Full paper on web in PDF at
http://www.warwick.ac.uk/fac/soc/Economics/oswald/regionalpublicpaymarch2002.pdf

For further information please contact:
Professor Andrew Oswald, University of Warwick
Tel: 01367 860005 (Home) 024 76 523510 (Office)
email: andrew.oswald@warwick.ac.uk (office)
mailto:a.j.oswald@oswald.co.uk(home)