Public Sector Pay and Inflation
Discussion
I wanted to discuss the effect that public sector pay has on inflation in the doctor's pay rise thread but apparently I don't have enough posts to comment on there.
Today my social media is full of people who are adamant that public sector pay rises have no effect on inflation whatsoever. Personally I don't believe that to be the case but I'm am interested to hear the reasoning behind this theory.
Surely there are many factors at play. Are the pay rises funded by borrowing, taxation, quantitative easing, out of existing budgets etc.
Are they taking into account that staff can leverage their pay rises by taking on more debt / bigger mortgages etc?
Will foreign NHS workers send more money back home in large enough quantities to have an effect on the exchange rate?
What if huge pay rises were given above the rate of inflation, would that not be inflationary?
I'm sure there are many other factors I haven't thought of but I would be interested in learning about this.
Today my social media is full of people who are adamant that public sector pay rises have no effect on inflation whatsoever. Personally I don't believe that to be the case but I'm am interested to hear the reasoning behind this theory.
Surely there are many factors at play. Are the pay rises funded by borrowing, taxation, quantitative easing, out of existing budgets etc.
Are they taking into account that staff can leverage their pay rises by taking on more debt / bigger mortgages etc?
Will foreign NHS workers send more money back home in large enough quantities to have an effect on the exchange rate?
What if huge pay rises were given above the rate of inflation, would that not be inflationary?
I'm sure there are many other factors I haven't thought of but I would be interested in learning about this.
My basic understanding is that wage inflation is linear to goods inflation & interest rates need to mirror goods inflation to get them under control, back to a reasonable 2% or whatever.
Give everyone 10% pay rises & inflation carries on to hyperinflation.
Make people suffer a bit in the pocket for a while & goods are effected via demand & inflation goes down.
Other elements such as recent high commodity prices & brexit do have a contributing factor. The only lever is grind time to wipe inflation out right down the supply chain.
Give everyone 10% pay rises & inflation carries on to hyperinflation.
Make people suffer a bit in the pocket for a while & goods are effected via demand & inflation goes down.
Other elements such as recent high commodity prices & brexit do have a contributing factor. The only lever is grind time to wipe inflation out right down the supply chain.
CSLM3CSL said:
I think most people agree that private sector pay rises cause inflation. It was news to me today that many people don't believe the same about the public sector.
But public sector rises are usually below the rate of inflation. So public sector rises become a response to inflation, rather than a cause. Not sure 5 or 6% to Teachers and Coppers is too much of an issue, it's below inflation. The two guys I go climbing with got 15 &17% respectively pre bonus this year. I do consulting and have put my rates up a similar amount because that's my current value. Prices from energy, telecommunications, super markets, builders etc have all gone up a similar amount. If anything I think, as an ex public sector employee, they're getting pretty shafted Vs what is really going on in the private sector.
CSLM3CSL said:
xx99xx said:
What about the effect of private sector pay rises?
I think most people agree that private sector pay rises cause inflation. It was news to me today that many people don't believe the same about the public sector. Edible Roadkill said:
I’m private sector & got 5% this year, wife private sector & got 0%.
2020 & 2021 I got 0% due to covid causing a downturn in the industry I work in.
There will be exceptions but I get the impression that generally private sector pay rises lag public sector.
You should consider checking actual data for this sort of thing rather than relying on your impressions. 2020 & 2021 I got 0% due to covid causing a downturn in the industry I work in.
There will be exceptions but I get the impression that generally private sector pay rises lag public sector.
All wage increases affect inflation - if you have more in your pocket, you'll be prepared to buy the same amount of goods and services at a higher price.
The government can't control private sector wages and a conservative government who believes in market forces and hands-off government arguably wouldn't want to. They can only say "ooh, we wish you wouldn't" to try and make us in the public sector feel better.
They can, and do control public sector pay increases. They are always behind inflation, which is fine when inflation is 2% and we don't notice but things get tetchy when it's higher. Things then got explosive when interest rates shot up because Nationwide have confirmed that they won't accept payment in philanthropy from me: they're insisting on cash.
What the government can't do easily is manipulate employment in the public sector. Things even out a bit in the private sector when there's a recession and companies decide that at £2X/hr, they only can afford X/2 employees but that doesn't seem to happen in the public sector - I suppose because trade unions prevent it.
There's also the basic issue that the conservative government doesn't believe in the public sector. One of the easiest ways to shut down the health service is to increase the pay differential between public and private as wide as possible. This is the first year that I've seriously considered entering private practice in any capacity: another 2-3 years of real-term pay cuts and they'll probably win me over.
Not clear why NHS Scotland agreed to supra-inflationary pay offers - I can only guess they have a smaller pool of employees so it affects things less?
I'll pre-empt the "you've got an amazing pension" post. Yes, we do. I just need to avoid having a heart attack long enough to see it...
The government can't control private sector wages and a conservative government who believes in market forces and hands-off government arguably wouldn't want to. They can only say "ooh, we wish you wouldn't" to try and make us in the public sector feel better.
They can, and do control public sector pay increases. They are always behind inflation, which is fine when inflation is 2% and we don't notice but things get tetchy when it's higher. Things then got explosive when interest rates shot up because Nationwide have confirmed that they won't accept payment in philanthropy from me: they're insisting on cash.
What the government can't do easily is manipulate employment in the public sector. Things even out a bit in the private sector when there's a recession and companies decide that at £2X/hr, they only can afford X/2 employees but that doesn't seem to happen in the public sector - I suppose because trade unions prevent it.
There's also the basic issue that the conservative government doesn't believe in the public sector. One of the easiest ways to shut down the health service is to increase the pay differential between public and private as wide as possible. This is the first year that I've seriously considered entering private practice in any capacity: another 2-3 years of real-term pay cuts and they'll probably win me over.
Not clear why NHS Scotland agreed to supra-inflationary pay offers - I can only guess they have a smaller pool of employees so it affects things less?
I'll pre-empt the "you've got an amazing pension" post. Yes, we do. I just need to avoid having a heart attack long enough to see it...
xx99xx said:
CSLM3CSL said:
I think most people agree that private sector pay rises cause inflation. It was news to me today that many people don't believe the same about the public sector.
But public sector rises are usually below the rate of inflation. So public sector rises become a response to inflation, rather than a cause. Isn’t it the difference between supply side and demand side inflationary forces.
ie if you increase the pay of the farmers and the Tesco workers you directly increase the cost of the products on the shelves. Supply side inflation.
If you increase the pay in the pockets of the consumers (in particular those who do not work in the supply chain) then you increase demand because there’s more money out there to buy things and prices can go up. Demand side inflation.
ie if you increase the pay of the farmers and the Tesco workers you directly increase the cost of the products on the shelves. Supply side inflation.
If you increase the pay in the pockets of the consumers (in particular those who do not work in the supply chain) then you increase demand because there’s more money out there to buy things and prices can go up. Demand side inflation.
How does it affect the cost of public sector pensions? Do they still get final salary pensions? If so, aren't their contributions are based on the current/previous salary, but when they collect it, it's based on their salary at time of retirement? If wages have inflated at a high rate then will that create a huge black hole in pension funding?
The same would be true for private sector, but this is only really significant for defined benefit schemes?
The same would be true for private sector, but this is only really significant for defined benefit schemes?
Skyedriver said:
Local Authorities were saying that the increase in pay would result in cuts in services. So if they cut services, what are the public sector employees going to actually do?
Just asking?
Eh? Just asking?
When they cut services they'll also be getting rid of the people that provide those services. What would be the point of cutting services but retaining all the staff?
mjb1 said:
How does it affect the cost of public sector pensions? Do they still get final salary pensions? If so, aren't their contributions are based on the current/previous salary, but when they collect it, it's based on their salary at time of retirement? If wages have inflated at a high rate then will that create a huge black hole in pension funding?
The same would be true for private sector, but this is only really significant for defined benefit schemes?
LGPS isn't based on Final salary anymore it's CARE (Career Average Revaluated Earnings).The same would be true for private sector, but this is only really significant for defined benefit schemes?
Countdown said:
Skyedriver said:
Local Authorities were saying that the increase in pay would result in cuts in services. So if they cut services, what are the public sector employees going to actually do?
Just asking?
Eh? Just asking?
When they cut services they'll also be getting rid of the people that provide those services. What would be the point of cutting services but retaining all the staff?
In many cases the people have already gone, and a lot of the services exist more in theory than in reality. Also a lot of services are outsourced, so it's people working for suppliers who are laid off.
Skyedriver said:
Local Authorities were saying that the increase in pay would result in cuts in services. So if they cut services, what are the public sector employees going to actually do?
Just asking?
working from home and having guaranteed no risk index linked gold plated pensions.Just asking?
I understand the biggest expenditure for LA is their pensions. public sector pensions are unaffordable to the private sector. Thats the issue. its simply unaffordable.
I would be much happier to have a level playing field where public sector pensions were subject the what private sector has to self fund and risk with them. You could then compare wages between the two sectors. eggs with eggs. Which would make it more transparent and then allow public sector to genuinely argue its case better for better "pay" and may have more support from the wider society.
Edited by superlightr on Friday 14th July 11:57
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