2 thoughts on “IEA Debate: Should public sector wages be frozen to help pay for Covid?”

  1. Posted 21/11/2020 at 22:19 | Permalink

    It is interesting to see Keynesian stimulus arguments being used in both case – I disagree with those profoundly. The second piece uses “cost push inflation” arguments which I also disagree with. Both pieces also use central planning arguments to justify their case: I disagree with those too. With regard to those public sector entities that are managed at local level (schools, hospitals, police etc), the government should surely decide the budget and the employers determine the level of pay necessary to recruit the right staff in the conditions that they find themselves in (my guess would be that pay levels would not be as high in real terms as currently). In relation to direct employees of government (army, civil service etc), we do, of course, need to try to centrally plan wages, but we do so knowing that government is competing with private labour markets. Wage levels should be determined by supply and demand for labour in the relevant sectors and set at a level necessary to recruit the right type of staff.

  2. Posted 23/11/2020 at 09:45 | Permalink

    Julian,

    The main argument, in my opinion, for a public sector wage freeze is to avoid an inflationary spiral. Many people, including in particular the public sector, have been paid as much (or more) than ever while being temporarily, at least, effectively poorer because they have not been able to spend their money on the things they would normally choose (holidays, restaurants, pubs, cinemas, etc.). When the virus crisis is over, suddenly there will be plenty of money chasing the same number of goods and services and an increase in inflation is likely. We know that because, on average, private sector workers have suffered decreased income they will not be a big driver of this inflation – but public sector workers will. To increase their pay further now will only exacerbate this effect.

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