The Tories blame a bloated public sector for economic stagnation in parts of Britain—but the private sector won’t automatically step inby Tim Leunig / July 21, 2010 / Leave a comment
Everyone agrees that the economic disparities between north and south need to be tackled. It is unacceptable that a child born in one part of Britain has hugely different life chances to one born a few hundred miles away. The chancellor, George Osborne, was careful to state that the recent emergency Budget would “promote job creation in all parts of the country.” The government is rightly sceptical of the record of public-sector regeneration schemes, but goes further in seeing the size of the public sector as a barrier to regeneration.
The state is certainly a heavyweight employer in some places. More than 40 per cent of workers in Middlesbrough, in the northeast, have jobs in public administration, education and housing—far above the national average of 27 per cent and far, far above the 12 per cent in places such as Crawley, in the southeast. The private sector fails to thrive in Middlesbrough, the argument runs, because the public sector—with its generous national salary scales, cushy pensions and long holidays—snaffles up all the staff.
However, imagine Middlesbrough and Crawley as prospective locations for a business. If you offer wages of £500 a week you will struggle to recruit in Crawley—that is £63 less than the average full-time wage for men there—but get a good workforce in Middlesbrough, where it is £63 above the average. The difference in land costs is even greater: industrial land is 12 times as expensive in Crawley as in Middlesbrough. The public sector has not priced the private sector out in Middlesbrough; in fact, Middlesbrough remains a low-cost place to do business.
Other northeastern towns with smaller public sectors give some clue as to what Middlesbrough would be like without this large-scale employer. Take Easington, for instance. Jobs there pay 20 per cent less than those in Middlesbrough—although the skills base and job mixes are roughly equal—and many are out of work. This will be the reality for Middlesbrough when public-sector job cuts arrive: lower wages and higher unemployment.
In the recent film Up in the Air, George Clooney’s character tells the newly unemployed: “Anyone who ever built an empire or changed the world sat where you’re sitting right now.” If we make large numbers of public-sector workers in Middlesbrough redundant, some will no doubt found their own businesses. But Clooney’s job in the film was to placate people by selling them a chimera. Many of the…