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Earnings in the Public and Private Sectors 1950—1975

Published online by Cambridge University Press:  26 March 2020

A.J.H. Dean
A.J.H. Dean*
Affiliation:
National Institute of Economic and Social Research
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Abstract

This article analyses the trend of earnings in the public and private sectors of the British economy from 1950 to 1975. It was found that public and private sector earnings moved closely together throughout the 1950s and 1960s but then diverged considerably in the early 1970s, with public sector earnings moving ahead of private sector earnings in an unprecedented fashion in 1974 and 1975; given the earlier stability in relative earnings, this movement might be temporary. There was a significant difference in the cyclical behaviour of the two series with public sector earnings generally increasing faster than private sector earnings during the downswing and vice versa during the upswing; this finding is consistent with the lesser exposure of the public sector to market pressures. Incomes policy does not appear to have affected relative earnings in any systematic way.

Type
Articles
Information
National Institute Economic Review , Volume 74 , November 1975 , pp. 60 - 70
Copyright
Copyright © 1975 National Institute of Economic and Social Research

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Footnotes

(1)

The author had the advantage of the use of some previous work done on this subject by Perry Phillips when he was at the National Institute in 1972. He has also benefited from the helpful comments of various members of the National Institute staff.

References

Notes

(page 60 note 2) See for example, D. I. Mackay and R. A. Hart, ‘Wage Inflation and the Phillips Relationship’, Manchester School, June 1974.

(page 61 note 1) See in particular O. Eckstein and T. A. Wilson, ‘The determination of money wages in American industry’, Quarterly Journal of Economics 1962, pages 380-414.

(page 61 note 2) See for example D. Jackson, H. A. Turner and F. Wilkinson, ‘Do trade unions cause inflation?’, CUP 1972.

(page 61 note 3) J. Johnston, ‘A macro-model of inflation’, Economic Journal, June 1975.

(page 61 note 4) Note however that in the productivity approach of the so-called Swedish model of the open economy, it is productivity (and prices) in the traded goods sector that determines wages; see G. Edgren, K-O. Faxen and C-E. Odhner, ‘Wages, growth and the distribution of income’, Swedish Journal of Economics, Sept. 1969.

(page 61 note 5) See especially A. G. Hines, ‘Trade unions and wage inflation in the United Kingdom, 1893-1961’, Review of Economic Studies, 1964.

(page 61 note 6) The coal and electricity workers have achieved larger than average rises in recent years but did not lead other groups either in time or size of settlement before the 1970s.

(page 61 note 7) K. G. J. C. Knowles, Ch. 14 of The British Economy in the Nineteen Fifties, ed. G. D. N. Worswick and P. H. Ady, OUP 1962.

(page 61 note 8) The principle of ‘fair comparison’ was put forward by the Priestley Commission on the Civil Service in 1955 and has been used by successive commissions and inquiries into public sector pay and by the present Pay Research Unit.

(page 62 note 1) The Minister of State for the Department of Employment recently said that information for the latest annual percentage increases in average earnings for the public and private sectors was regrettably not available (Hansard, 18 March 1975, Col. 1443). He later went on to point out that neither the monthly index of average earnings nor the New Earnings Survey could be used to make reliable estimates for the public and private sector separately (Hansard, 27 March 1975, Cols. 281-282). The House of Commons Public Expenditure Committee has now argued in its Ninth Report that “…. it is desirable to know whether rates of change in public and private sector pay settlements are different” and has recommended that “… the necessary statistics should be collected and published at regular intervals” (House of Commons, 10 July 1975).

(page 65 note 1) The data on the production cycle used for this purpose were taken from Chapter 5 of D. O'Dea, Cyclical Indicators for the Postwar British Economy, CUP 1975.

(page 66 note 1) See K. J. C. Knowles and E. M. F. Thorne, ‘Wage rounds, 1948-59’, Bulletin of the Oxford University Institute of Statistics, February 1961, and National Institute Economic Review, no. 27, February 1964, page 25.

(page 66 note 2) K. J. C. Knowles and D. Robinson, ‘Wage round and wage policy’, Bulletin of the Oxford University Institute of Statistics, May 1962.

(page 66 note 3) It is difficult to tell when the operation of this policy was put into effect and how long it lasted because it was throughout an informal policy. The Government certainly intervened in a settlement affecting 700 white collar employees of the British Waterways Board soon after the 1970 General Election. But the way in which the Government sought to influence the outcome of individual negotiations is not clear. The de-escalation policy continued through to 1972 by which time the Government had decided, the policy having failed, that formal intervention in the wage-setting process would have to be employed.

(page 69 note 1) Appendix 4—Average Earnings, New Earnings Survey 1968, HMSO 1970.