Pay competitiveness and its impact on public services

Simon Jean-Baptiste Combes (1, 2)

1 ARENES - Arènes: politique, santé publique, environnement, médias
2 EHESP - École des Hautes Études en Santé Publique [EHESP]

Background: Wage regulation is a debate in economics that has been on for nearly one century and theseminal work of Arthur Cecil Pigou. On one hand wage regulation is supposed to impede markets toclear and thus create distortion in labour allocation. On the other hand wage regulation is a con-sequence of a process for a fairer allocation of revenues between labour and capital. The research hasfocused on reasons for the existence of geographical pay dispersion. It has been argued that geograph-ical pay dispersion is the result of markets allocating efficiently resources to different areas with differ-ent cost of living and amenity levels. Aim: This paper investigates the research results of the impact of the pay gaps between two sectors inthe economy on public services staffing and delivery. Methods and Results: Standardised Spatial Wage Differentials (SSWDs) are standardised wages for dif-ferent regions within a country. Those can be estimated for public service staff and a comparator groupin the private sector. The gap between the two, following a neoclassical approach would be interpretedas the indirect cost faced by public sector. Propper and Van Reenan (2010) use those gaps in explaining differences in death rates of Acute Myocardical Infraction in English hospitals. When the public sectorpay is not as competitive as the private sector one, death rates are higher. Elliott et al. ( 2007; 2009;2006) and Ma et al. ( 2009) investigate problems of recruitments in schools and hospitals. Vacancy ratesare positively associated with higher gaps (public sector pay less competitive). Work in progress of theauthor show that similar results to the ones found by Elliott (2007) happen for French hospitals. Hospit-als in départements which have a less competitive pay compared to the private sector tend to have alower level of nursing staff. Discussion: This area of research has huge policy implications. If the neoclassical framework is takenhas granted then deregulating even further the pay of the public sector would be seen as a solution forimprovement in public services delivery. However, one of the main criticism of markets is that they donot exist as in theory, they are institutions created by human societies. An alternative to markets is ademocratic process in which pay setting is negotiated nationwide. In that latter case, not only the payof individuals in different sectors would be negotiated but also inequalities, unemployment, cost of liv-ing and amenities could be taken into account.

Domaines: Sciences de l'Homme et Société; Sciences de l'Homme et Société

Simon Jean-Baptiste Combes. Pay competitiveness and its impact on public services. Political Economy and the Outlook for Capitalism, Joint conference AHE, IIPE, FAPE,, Jul 2012, Paris, France. ⟨halshs-03589577⟩