PLANS to vary public sector wages by region could hurt both jobs and output, the Trades Union Congress (TUC) and New Economics Foundation (NEF) have claimed today.
The rationale for the plan is that wages and the cost of living vary widely across the country – the familiar London weighting is a blunt example of the basic idea in action.
These variations in wages and prices mean not only that real wages are higher for public sector workers in low-cost areas, but also that public jobs crowd out private employment, as workers hold out for attractive jobs on the state payroll.
But the NEF and TUC believe that the hit to purchasing power will harm consumption and thus the economy as a whole, reducing output by nearly £10bn and potentially leading to some 110,000 net job losses.
Tim Worstall at the Adam Smith Institute argued that even if true, this was inconsequential.
“We know very well that national pay scales harm people in high wage areas,” he said.
“The idea and aim of having regional or local pay scales is not to reduce wages in cheap areas – it is to increase them in expensive ones.”