You’ll probably have noticed that Rishi Sunak announced a pay freeze for public sector workers in his spending review a couple of weeks ago. Two groups were exempted from the freeze: healthcare workers and people who earn less than £24,000 a year.
Public sector wages account for £200 billion of spending. Freezing them saves real money. In looking to save money though, Mr Sunak wanted to avoid the obvious political error of hitting NHS staff. Allowing some increase for the lowest paid — even if it is only £250 a year — also looks a lot fairer than imposing a blanket freeze.
The politics may make sense. The economics less so. Earnings in general have had a terrible decade. People in the public sector have fared worse. The average teacher earns 9 per cent less, after accounting for inflation, than in 2010. Public sector earnings were approaching historic lows relative to those in the private sector before the pandemic hit. On the other hand, this year the public sector has done much better than the private sector, as is often the case in difficult economic times. The gap between generous pension provision in the public sector and miserable private sector provision has also grown over time.
The public sector wage distribution is already compressed relative to that in the private sector. If you want to get rich you probably want to work in the private sector. If you want to avoid the lowest wages, stick to the public sector. The differences between the two can cause problems and Mr Sunak’s announcement will exacerbate the differences. Think about maths and physics graduates. They earn a lot less as teachers than in alternative careers. Recruitment targets are always missed. Freezing their pay doesn’t look all that clever.
What I really want to draw your attention to though is this part of the chancellor’s speech: “We will protect those on lower incomes. The 2.1 million public sector workers who earn below the median wage of £24,000 will be guaranteed a pay rise of at least £250.” £24,000. I’m guessing that most of you reading this column will consider that a pretty low salary for a full-time job. Yet, as Mr Sunak says, it is (a reasonable definition of) the median full-time equivalent salary. The corollary of course is that half the working population earns less than that. Half the working population as a whole, but “only” about 40 per cent of those in the public sector.
I’m now going to throw a bunch of statistics at you. I think they are numbers that will help you understand a little more about our labour market. Before I do, I’d just say one thing about the £24,000 number. It ought to be higher. It ought to be higher in the sense that it is today roughly where it was back in 2008. We’ve had more than a decade with no real earnings growth. If things had progressed as they normally do with earnings rising 1.5 or 2 per cent a year ahead of inflation, that median wage today would be nearer £28,000. That’s a big loss; a huge economic failure.
Now for some of those statistics. Among people over 25 about 11 per cent of men and nearly 20 per cent of women employees were, last year, paid £9 an hour or less. The national living wage for the over-25s currently stands at £8.72 an hour. One in ten men and one in five women over the age of 25 in work would, if working a 36-hour week, be earning less than £17,000 a year. These lowest-paid workers are concentrated in sectors such as retail, hospitality and cleaning — just the sort of work, by the way, most disrupted by the pandemic.
Looking at the other end of the labour market, to get into the top 10 per cent of full-time earners you need to be on a bit over £60,000 a year. Across the country that gets you into the top 10 per cent. But if you’re like me and you’re a male graduate in your forties or fifties working in London that sort of salary would only just tip you over the median among your peers. You’d need to be earning over £100,000 to make it into the top 10 per cent of people like you. If you’re younger, a non-graduate and working outside London, then your median salary — looking at men and women together — is only about £20,000. Earnings of just £35,000 would put you in the top 10 per cent among your peers.
Once you get into the top 1 per cent the numbers look much bigger. You need about £150,000 a year to make it into the top 1 per cent for the country as whole. It takes many multiples of that to get you into the top 1 per cent of graduates in London.
Sorry to bombard you with all those statistics. There is a point to them. We all tend to use ourselves, our colleagues and our friends as reference points. It comes as a surprise to many graduates based in London that median wages are so low. It’s why you regularly get commentators in some outlets referring to £100,000 a year as a normal, or even inadequate, salary. It’s why some people on that sort of money consider themselves poorly paid — they look up the road at the bankers or corporate lawyers on much bigger salaries rather than across town at the far bigger numbers of cleaners and shop assistants and care workers earning far, far less.
We have a choice. We can look enviously on those earning more than we do. Or we can recognise, and want to do something about, the struggles of those on the lowest pay. At the very least it’s worth knowing where we sit in the distribution, and just reflecting now and again on where our earnings are relative to that median measure of £24,000.
This article originally appeared in The Times and is used here with kind permission.