Pay Matters Peter

But perhaps not quite as much as many think.

As another sign that inflation is at the top of every monetary policymakers' list of concerns, Alistair Darling is pressing for below-inflation pay rises across the board.

Well, yes, but then I've not all that much time for a laywer's musings on matters economic.

But the private sector is setting dangerous precedents which will give Darling and his colleagues even less room for manouevre.

The thing is that pay itself doesn't really matter all that much. What does matter is what you get coming back in for the pay going out. The, in the jargon, productivity of the workers.

If at the same time as raising the tanker drivers wages by 14% over two years the management also managed to get, say, 8 or 9 % more production out of them then that's, per unit of work only a 2% or so rise a year: pretty much bang in line with inflation itself. There would be thus no inflationary implications at all of that deal.

Now, as to whether they will get that increase in productivity I've no idea. Some would say that if they could have got it, then they would have already, without the pay rise. Well, possibly, but around and about the times of such decent wedges of cash being handed over is also when managers see that they've got the power (? maybe not quite right. The workforce's acquiescence to their doing so?) to wipe out a few Spanish practices.

But that's the theory at least. And as to why public sector pay doesn't work the same way: well, it would, if only anyone knew how to either measure properly or influence productivity in that sector. You might note that we've been trying for some decades now to make them "more efficient" and while the privatisation of swathes of them did indeed work there seems to be little appetite for that now. No one has really got any other decent ideas on how to increase efficiency in the public sector.