How scrapping national pay rates might save lives
An interesting economic study of centralised public sector payscales from 2008 and 2010 reveals a fascinating link between uniform pay rates, and the survivability of their patients.
The study concludes that centralised pay models caused extra fatalities in hospitals.
That seems like a stretch. But the respected Professor John van Reenen and his team at the London School of economics did make exactly this finding in relation to nurses’ wages.
Broadly speaking, higher private wages mean more deaths. The argument is that in areas of high private wages, it is more difficult to recruit and retain nurses in the public sector, which means more agency staff, and therefore more deaths in public hospitals.
For every 2 per cent increase in the average private wage from area to area, the death rate increases by 1 per cent.
Here is how The Economist describes the situation.
A 2010 update of this study concludes: “Publicly run health care markets would be wise to relax the regulatory systems and allow local wages to reflect local conditions as they do in the private sector. According to our analysis, such deregulation would lead to higher-quality public services and fewer deaths”.
As one union leader tweeted at me today that paper surely makes the argument for higher nurses pay and less agency workers. But it’s not the lesson that the Treasury and George Osborne is taking as they push ahead with the beginning of the end of national pay bargaining in Wednesday’s budget.
Let me sketch out what is happening and what it hopes to achieve:
1. Francis Maude has been looking into some form of pay localisation for civil servants in the Department for Transport, Home Office, and DWP and associated agencies – 160,000 jobs in total in places like job centres and the DVLA in Swansea. These are civil servants who are coming off their pay freeze a year before most other public sector workers having started it a year early.
2. This move will not lead to a scored cost-saving at Wednesday’s budget. It is designed as a way to help local rebalancing of low growth local economies with a large public sector. In theory, if review bodies suggested it, pay rises might occur in the South East. Though I wouldn’t bank on it.
3. The government points to the fact that there is already localised pay in the Courts Service, introduced by Labour in 2008. Importantly it is not regional. For example a Band C Court Manager will get paid up to £36k in inner London, but just £28k in Newcastle and Leeds. But then, for reasons difficult that are unclear, the managers of inner city courts in Liverpool and Manchester are deemed to be “hotspots” that get paid up to £32k.
4. The government believes that rebalancing the ratio of public and private wages in low growth areas will provide a fundamental fillip to private sector recovery in those areas. Gordon Brown tried to push this in 2003. And the Conservatives tried it, effectively, with NHS trusts in 2006/7. And there was something called the Megaw Report in 1982. It’s not easy to actually pull off.
5. Pay Review bodies are currently gathering evidence in relation to these letters from the Chancellor:
So the plan is to spread this to teachers, the NHS, prisons, and senior civil servants. Only doctors, dentists, and the armed services are exempt, because they are deemed to be “recruited nationally”.
Here are some of the challenges to the idea and the execution of this plan.
6. It is far from clear that multinationals in Britain feel the need to localise pay on a massive scale. The respected Incomes Data Services carried out this empirical study for a union which said:
“Local-level bargaining is not common among national companies due to costs involved in duplication and lack of paybill control,” it says. (The report is highly recommended as it shows just how much of the public sector already have elements of regional pay). Local pay is seen in retail, at John Lewis, Argos etc.
7. The attempt to find a dispassionate way to benchmark local pay in the case of the Courts Service was not easy. “They tried various metrics, and ended up with a “felt fair” system of Zonal pay to be decided by regional managers,” said one negotiator. The basis upon which a court manager in Liverpool and Manchester is worth £4k more than Leeds is a little mysterious.
8. Union fury is already being heard. Is this a fight to pick after pay freezes, extra pensions payments, and worse retirement incomes? What about MPs?
What incentive for northern firefighters and emergency services to save London during the next riots/ emergency? What about the regional pay of executives at state-run banks?
As the Work foundation write here, one of the principal reasons for this in the past have been to erode union influence.
9. Various Conservatives will be very nervous about this, and what it will do to their majorities, and the Liberal Democrat Westcountry heartlands.
10. Treasury insiders were stressing today that this change will be “evolutionary” rather than a revolution that will see ten year pay freezes. They are treading carefully here.
FURTHER READING:
IFS Green Budget: Page 19 onwards
Policy Exchange on public sector pay fairness
Follow @faisalislam on Twitter
To have a positive impact against the issue van Reenan identifies requires increases in public sector salaries in the London and South East compared to the private sector. Instead, salaries have been, and will continue to be, cut massively in real terms (15% since the pay freeze and pension contribution hikes were introduced, even more when you consider deferred pay – pensions – has been reduced by 25%+ too).
Cutting real pay everywhere, but a little bit faster outside London and the South East, as Osborne plans, will worsen recruitment problems in the NHS everywhere, but worsen them more outside London and the South East
Faisal,
Osborne, of course, is a liar and a hypocrite.
The whole purpose of this proposal is divide et impera. It sets people against each other in arguing for better pay in separate locations – thus replacing the solidarity of co-operative action.
It’s just more “free market” bollocks dressed in sophist garbage.
If the unions haven’t got the guts to fight this latest neocon scam then they might as well disband into harmless debating societies.
I say take on Osborne and his Tory thieves full face and battle them into the ground.
The problem with regional pay is that within a region – say the north-west you get public sector workers in a relative hot spot in Manchester but paid well over market rates in Carlisle & Workington. So to do this accurately you actually have to have local pay bargaining. When civil service pay was devolved from central pay bargaining to government departments & agencies, the result was higher pay because of weak bargaining by the “official side” in some cases & the effect of equality egislation. If largely women are doing the same job in Workington as largely men in London but are going to be paid say 25% less, I wonder whether an employment tribual will consider this complies with the law? I’d also be interested in seeing evidence whether in those places where public sector workers are paid on average higher than the private sector, people are leaving private sector jobs for public sector ones, or whether it’s more unemployed people queueing up for the decreasing number of pbulic sector jobs? While I can see people leaving “McJobs” for a more permanent position in the public sector, are they actually leaving jobs with decent prospects but lower pay levels like John Lewis?
And are we seriously going back over the track of wanting to build an economy on the basis of minimum wage “McJobs”? Our economy is already too tilted towards minimum wage service sector jobs as it is? To me, this looks like a solution looking for a problem. The Treasury have wanted to get local pay for years, just as they wanted to devolve pay to departments & agencies. They also forced the merger of Customs & Excise & Inland Revenue – & look what a success that’s been! The Treasury fundamentally don’t understand pay bargaining or how to negotiate from something like a position of equality. The risk is a long term detriment to the quality of the public sector. If you pay peanuts, you get monkeys &, as you can see in many parts of the world, monkeys who are corrupt & uninterested in their work. The idea that nurses wages will be raised to those of competing private sector is possibly one exception to the rule – but I doubt it’ll happen. Instead, there is a real risk that, whatever people think about the quality of our public services (influenced by constant negatives in the Mail & Sun, etc) now, within a few years they’ll start to get some unpleasant surprises.
Teachers in the private sector earn more than their counterparts in the public sector, so as a school governor charged with reducing the pay ratio between the two, I would have to recommend a pay rise for all our teaching staff.
Will a MP in the South West be paid less than a London one ?
I may have misunderstood the research here but to me it seems that if higher private sector pay causes more deaths then public sector should be raised rather than lowered regionally.
If a good, qualified nurse can leave the NHS to work for BUPA or one of the other private companies and earn more, then why shouldn’t she/he? It’s the very market forces the Tories love. But if the nurse could earn as much or almost as much in the NHS (that shelled out to train him or her) then they would most likely stay. Instead the NHS is left with a larger proportion of trainees and nurses (and doctors) who just aren’t good enough to get into the private market. Not surprising the death rate increases really.
This will be just another excuse by the nasty Tory party to grind down those who provide essential services to those of us who cannot afford private healthcare or to send our kids to private school.
Surely in schools in severely deprived areas, where recruitment and retention of good teachers is extremely difficult, the opposite should be happening. Teachers should be given a pay incentive to work in these schools where good teaching is needed more desperately.
This seems to be another nail in the coffin of the education system.
If this theory is correct, why are death rates higher in the north than in the south? According to the government, nurses are comparatively better off in the north.
One of the reasons given by the government for the change, is if you pay public sector workers more in the north it makes it harder for the private sector to recruit the best people.
Two points:
1) Isn’t this the beloved market forces? In banking we are told the high wages are because people could go elsewhere – so why doesn’t it drive up private sector pay in the north?
2) Does this mean that the public sector doesn’t need the best people? Could this explain why so much of the public sector is badly run – we intentionally recruit the second best?
To me it smacks of another gimmick to reduce the pay of lower earners so they can give more tax breaks to their rich mates.
We know that the cost-of-living varies significantly between town & country and between localities. We’re also aware that wage rates vary too. Scotland has for long enjoyed both higher earnings and lower cost-of-living than the UK average.
Moreover, a self-employed builder in, say, Harrogate can often earn more per day than in Leeds. And a shop worker earns more in Leeds than in Wakefield, if both were working for different small companies.
Should such pay and cost-of-living differences affect the public sector too? Well, they already do. Promotion is often quicker and at a less experienced stage for many categories of workers in London than in, say, the North. Which is kind of a pay difference to add to the formal differentials. That is often reflected in greater job mobility in the South-East, as workers there are able to chase higher paying jobs.
What really matters to employers is not wages but productivity. Truth is a shop worker in Bond Street will be ‘more productive’ than someone in a similar shop job in Bermondsey, because the opportunity to sell more valuable goods is greater in Bond St.
The problem is that no-one knows exactly what the differentials should…
Have the moderators gone on strike?