What is the Effect of Public Sector Pay-Regionalisation on Local Economies?

Paper:

What is the Effect of Public Sector Pay-Regionalisation on Local Economies?

Authors: Christopher Belfield, Ksenija Osmjana, Joyce Ong Pei Wen, and Christian Wolf 

Date: May 2012

Abstract: This paper looks at the Chancellor's proposition to regionalise public sector pay. Using private sector as a benchmark for regionalisation, we carried out quantitaive and qualitative analysis of this plicy. Using 1.5 multiplier, annual savings to the government were calculated as 0.22%, while annual fall in national GDP 0.33%. Some regions (Wales, Scotland and North West) are likely to face considerably large falls in annual GDP due to the policy implementation. If correctly implemented, pay regionalisation may solve problems of labour shortages and poor public service provision, as well as promote entrepreneurship. We propose that pay regionalisation is introduced, but a new payment system should be developed since zonal system would be ineffective due to the pay variation within regions. Additionally, savings form the policy introduction should be used for infrasctructure investment in order to prevent negative effects on the aggregate demand. Finally, effects of the pay regioanlisation are likely to be greater in the short-run and fade away over time.


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