Is there a public sector earnings premium in UK healthcare?

Dr Ezgi Kaya and Professor Melanie Jones examine pay differences and consider other benefits, such as pensions, to shed light on how public sector pay compares to the private sector and what this means for pay decisions going forward…

From 2011 to 2017, during the austerity period, UK public sector workers experienced real pay erosion. After the COVID-19 pandemic, the situation worsened as pay rises continued to lag behind inflation. This has raised serious concerns about the living standards of public sector employees. The resulting industrial action by nurses, doctors, and other NHS workers has further intensified the public and policy debate about public sector pay. Yet the government has a difficult task balancing public finances whilst maintaining the recruitment and retention of staff in the NHS.

One yardstick of the appropriateness of public sector pay is comparability with the private sector and there has long been concern that, on average, public sector workers get paid more. However, the composition of workers in each sector matters. The concentration of professional occupations in the public sector increases average pay and, after adjusting for composition, there is far more debate about whether there is a public sector pay premium.

In a recent study, we contribute to this debate by providing the first estimates for specific healthcare occupations, including doctors, nurses and care workers. We argue these estimates, which make comparisons within occupations, among similarly skilled and educated workers that have chosen the same profession, provide more accurate measures of sectoral differences than the national average. Moreover, instead of just looking at pay, we analyse remuneration meaning we include the value of employer pension contributions, which are often overlooked but usually more generous in the public sector.

Even after accounting for differences in the composition of workers, we find substantial variation around the national public sector hourly remuneration premium of 4 per cent within the five healthcare occupations we study. The public sector premium is largest among care workers (34 per cent), followed by auxiliary nurses (25 per cent) and doctors (15 per cent). This is much larger than either nurses (5 per cent) or medical secretaries (where there is no premium). While these gaps might reflect sectoral differences in detailed job demands they clearly warrant additional scrutiny and reflection as part of government pay setting, including by the independent Pay Review Bodies which make annual pay recommendations for the majority of public sector healthcare workers.

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