Devolved government and public sector pay reform: Considerations of equity and efficiency

Public sector pay is of critical concern to the governments in Westminster and Edinburgh. It accounts for the major part of these government's current expenditures and is a crucial determinant of the quality and range of the services they provide. The paper details the current arrangements for setting public sector pay. It is shown that these mechanisms are, for the most part, UK wide and that they result in national rates of pay that reveal little sensitivity to specific labour market conditions in Scotland. In consequence, in Scotland, public sector workers toward the lower end of the distribution of pay are now significantly better paid than their private sector counterparts while those at the upper end are now paid about the same. The paper uses data from the Labour Force Survey for 1996-2002 to establish these results. It uses these same data to forecast the changes in pay inequality in the Scottish public sector that would result from a reform of public sector pay setting institutions that aimed to bring rates of pay in the public sector into line with those in the private sector in Scotland.