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Jul 06 2011

The Two Cultures

It feels that there are two cultures growing up in the world of work, that of the public and the private sectors. If you believe reports in the news, public sector workers have gold-plated pensions and vast salaries for which they do very little, and the private sector is filled with the venial moneygrabbers who can provide no service to the public, and are actively intent on harming them.

I worked in the almost-public university sector, and now in the private sector – albeit in a very large company. The similarities are quite striking: both are subjected to continual change as the result of the appointment of a new ruling clique, and often operate in Byzantine bureaucratic systems.

These days, in the private sector, my tenure is clearly not secure and never has been, despite continuing success the number of people employed in my company has decreased by over a half since 2000. I receive a bonus, or variable-pay, it is variable and it is not pensionable. 

Last week many public sector workers were on strike over their pensions.

Comparisons with private sector pensions miss the point: in the public sector 90% of full-time workers have a pension, in the private sector only 43% of the full-time workforce have a pension [source]. The glib answer to this is that we should attempt to improve the pensions of all workers. However, we should understand why pensions are not a given in the private sector.  

Consider the nature of the organisations involved: the UK government has been around for hundreds of years, and we can anticipate it will do so similarly for hundreds of years. It also has a good credit record, if we are owed money by the government there is a good chance that we’ll get because at any time the government has a sizeable tax base on which it can call. As employees of the government we can expect substantial job security. A pension plan based on 1/80ths of income accrued per year actually seems a plausible bet: you can still expect to serve a substantial fraction of that with one public employer. It’s not the same in the private sector.

For most companies 40 years is an unimaginable period of time, as it is for their employees. In 40 years many successful companies will have lived out their lives, only a few such as the one I belong to, last longer. In the recent past private pension funds have collapsed leaving their members with nothing. As a university lecturer I could quite reasonably look forward to being employed as a university lecturer for the rest of my working life. As an industrial research scientist my time horizon is about 5 years, and actually it is entirely plausible that we will all be called to a meeting tomorrow to discover that the site I work on is to be closed.

That’s the deal for big organisations, public and private but there is a third group: Have you tried to get a plumber, or similar skilled, self-employed worker recently? If you have you’ll have found that they’re remarkably available at the moment, that’s because they have no work and when they have no work they don’t get paid. The same is true for many small businesses and self-employed people. It’s not like my job, or any job in the public sector where there may be a pay freeze for for a few years. For these people recession and a drop in the GDP doesn’t just mean a pay freeze, it means a substantial drop in income – that’s what a drop in GDP is, it really means that a whole load of people are getting noticeably less than they did the previous year. The recent recession in the UK led to a drop in GDP of around 5%. The effects on me, in a big company, and those in the public sector are relatively small, so the impact on this other group are larger than the headline.

Meanwhile the company I work for is attempting changes to our pension scheme: a few years ago the final salary scheme was closed to new entrants, this year they have proposed to close the scheme for current members. The company’s stated policy is to go towards a defined contributions scheme, although that hasn’t happened yet. For people like me this means an expected loss in the value of their pension of around 20%. So, despite some misgivings as to the use to which they put their political fund (of which I will attempt to opt-out), I have joined the union.

Power to the people!