Influencing policy in the areas of Employment and Public Sector Pay
Submitting InstitutionSwansea University
Unit of AssessmentBusiness and Management Studies
Summary Impact TypeEconomic
Research Subject Area(s)
Economics: Applied Economics
Commerce, Management, Tourism and Services: Business and Management
Summary of the impact
Our research has had a significant impact on economic policy formation.
This impact is best exemplified by looking at two examples:
1) Safeguarding 10,000 jobs in Wales: providing the evidence base
for the introduction of the ProAct.
2) Providing critical evidence to the debate initiated by the
Chancellor of the Exchequer in 2011 for more market facing pay for
over 6 million public sector employees, which was subsequently abandoned
in 2012 in part based as a consequence of our research findings.
The underlying research on regional and labour economics spans over two
decades, involving the creation, since 2002, of 3 research centres (£2.4m
to Swansea) which, through 50 reports, have impacted directly on policy.
Swansea has a strong track record of research on regional and labour
economics and the Welsh economy. The Oxford Bulletin 1995 (R1)
paper on Britain's North-South divide built on earlier research published
in the Economic Journal and estimated hedonic wage and
unemployment equations finding a strong role for skills in determining
regional differences in unemployment and wages. This implied a need for
regional policy to be geared towards re-training; one which would be less
inflationary than other strategies. The paper also found higher wages were
required in large plants to compensate employees for working in such
settings. Papers in the Manchester School 1999 and Oxford
Economic Papers 2002 (R4) and a number of papers in Economics
Letters, most recently in 2005, have compared and contrasted the
unemployment and earnings experiences of whites and ethnic minorities and
the impact of recessions and again found important roles for public sector
employment, job tenure and plant size in determining labour market
experiences of disadvantaged groups. The Economics Letters (2007)
paper (R5) on the economically inactive and the reservation wage
arose directly from the research undertaken for the Welsh Government (R6).
The paper, using unique survey data collected in Wales as part of the
research, provides estimates of the elasticity of the reservation wage and
exit probability with respect to state benefits, and the arrival rate of
job offers. The results suggest that changes in benefits, particularly
incapacity benefits, could have an important part to play in meeting an
80% employment target by 2010. Our Economics Letters paper, 1999 (R2)
was one of the first papers to use quantile regressions to examine the
public/private sector wage differential and found the highest premiums at
the lower tail of the wage distribution and a larger differential for
women. This research was followed up with a paper (R3) examining
the robustness of the Institute of Fiscal Studies estimates of
public/private pay, which had been cited by the Chancellor of the
Exchequer in his Autumn Statement 2011 and 2012 Budget, as a reason for
introducing more market-facing pay for over 6 million public sector
workers in the UK.
This strong research base in the areas of labour and regional economics
has been recognized internationally and resulted in the development of
three research centres (involving Blackaby, Jones, Murphy and O'Leary);
WELMERC (Welsh Economy and Labour Market Evaluation Research Centre) in
2002 (£1.3m of European Social Fund research funding); SERC (Spatial
Economics Research Centre) an ESRC Research Centre in 2008 (£250k of
research funding to Swansea, led by LSE and involving Glasgow, Newcastle,
Oxford and Swansea); and WISERD (Wales Institute of Social and Economic
Research, Data and Methods) in 2009 (£496k of HEFCW research funding to
Swansea). Recognising expertise on public sector pay issues, in October
2012 Murphy was awarded an ESRC grant of £198k (for 18 months
involving Blackaby and Jones) under its Secondary Data
Initiative, entitled The Labour Market Implications of Changes in the
These research centres have undertaken research on unemployment,
inactivity, migration, the gender pay gap, productivity, inward
investment, public/private sector wage differentials and labour market
transitions, and since their creation, have attracted additional funding.
For example in 2010 the Welsh Government published 3 WELMERC reports on
its website, including "Modeling
and Explaining Regional Differences in Economic Prosperity within Wales".
probably the most significant report was on Identifying Barriers to
Economic Activity in Wales (R6a&b) which was commissioned
by the Welsh Government, on the basis of the research strengths (R1, R4)
outlined above and published in two parts in 2003 and 2004. These reports
examined the issue of economic inactivity and outlined a number of policy
options to address the problem, including additional training and wage
Blackaby (Professor), Murphy (Professor), O'Leary
(Reader), Jones (Reader) and Staneva (Research Officer)
were appointed to posts at Swansea University in 1982, 1991, 1992, 2002
and 2011 respectively and have remained in post throughout. Authors
highlighted in bold were based at Swansea at the time of
References to the research
[R1] D. Blackaby and P. Murphy (1995), "Earnings,
Unemployment and Britain's North-South Divide: Real or Imaginary?" Oxford
Bulletin of Economics and Statistics, Vol. 57, pp. 483- 508.
[R2] D. Blackaby, P. Murphy and N. O'Leary (1999), "The
payment of public sector workers in the UK: reconciliation with North
American finding", Economics Letters, Vol. 65, pp. 239-243.
[R3] D. Blackaby, P. Murphy, N. O'Leary and A. Staneva,
(2012) "An investigation of the IFS public-private sector pay
differential: A robustness check", Swansea University Department of
Economics Discussion Paper 2012-09.
[R4] D. Blackaby, D. Leslie, P. Murphy and N. O'Leary
(2002), "White/Ethnic Minority Earnings and Employment Differentials in
Britain: Evidence from the LFS", Oxford Economic Papers, Vol. 54,
[R5] D. Blackaby, P. Latreille, P. Murphy, N. O'Leary and P.
Sloane (2007), "An analysis of reservation wages for the
economically inactive", Economics Letters, Vol. 97, Issue 1, pp.
[R6a&b] "Identifying Barriers to Economic Activity in Wales"
(Stage 1) 2003 http://cymru.gov.uk/about/aboutresearch/econoresearch/completed/barriersone/;jsessionid=56x1K88PFjr94STcRk2x0SwvV2Gtn8NT6gQh4hh215ScDyNKWvMK!392406782?lang=en
"Identifying Barriers to Economic Activity in Wales (Stage 2): A Survey
of Economically Inactive People in Three Areas of Special Interest" 2004 Blackaby,
Latreille, Murphy, O'Leary and Sloane http://cymru.gov.uk/about/aboutresearch/econoresearch/completed/barriers/?lang=en
Details of the impact
1) The Barriers to Economic Activity Report contributed to important
labour market debates in both Wales and the UK (R6). The Report
noted the importance of introducing more effective `gateways' for the
unemployed and also introducing new `gateways' for the inactive on
incapacity benefits. Both these recommendations have been taken on-board
by the UK government in recent changes to labour market legislation. The
report was cited in Government Reports including in "A Review of Local
Economic and Employment Development Policy Approaches in OECD countries",
OECD 2008 (C5). In 2009 Blackaby and Murphy were
also requested to provide written and oral evidence to the Enterprise and
Learning Committee of the Welsh Government on unemployment and the
recession, given their research in the area of skills, unemployment and
the Welsh economy (C9).
R6 also noted the importance of redundancy on increasing
inactivity in Wales and the role of training and wage subsidies in
reducing unemployment. During the recent recession (October 2008), the
Welsh Government introduced ProAct, based in part on this evidence from (R6).
The ProAct programme is unique in the UK and involves offering wage
subsidies and funding for training to firms to keep workers in employment
who would otherwise have been made redundant. Estimates suggest 10,000
people were helped by ProAct to stay in work in Wales (C1). An
Impact Evaluation of ProAct (C2) found 13% of companies supported
believed they would have closed altogether without help. One manufacturing
company employing between 25-49 employees stated "without the wage
subsidy we would have lost at least another 5-6 staff". A
multi-union spokesperson for the global conglomeration Tata said "unique
to Wales the ProAct scheme is set to benefit a large number of the
workforce protecting their jobs and further improving their
Rhodri Morgan First Minister for Wales, stated in 2005 (Forward C3)
"The Welsh Assembly Government is committed to developing policies on
the basis of a firm body of evidence and I am pleased to see that the
programme recommended by the Panel is beginning to make a real
contribution to policy development in Wales. The major research into
`Barriers to Economic Activity' (R6) has been
particularly useful... and this has contributed to new proposals to help
raise economic activity".
A number of seminars were given to civil servants of the Welsh Government
outlining the findings and recommendations of the research. Jonathan
Price, Chief Economist, Welsh Assembly Government stated in 2012, "The
major report produced for the Welsh Government on `Identifying Barriers
to Economic Activity' (R6) was very insightful and
contributed to Welsh Government policies to reduce economic inactivity
in Wales, which have seen the gap between Wales and the rest of the UK
fall and included the ProAct and ReAct programmes."
2) The Chancellor of the Exchequer announced in the Autumn Statement of
2011 that the public sector pay free freeze would come to an end in
2012/13, with public sector pay awards of 1 per cent planned over the next
2 years. Emphasis was also placed on making public sector pay more
responsive to local labour market conditions. Evidence from the IFS was
quoted which revealed a public/private sector pay premium of around 8 per
cent and which found substantial differences in the regional pay premium.
Given their research background in this area Blackaby, Murphy O'Leary
and Staneva undertook a robustness test of the IFS research (R3)
and found it very sensitive to measurement issues and time period choice.
In particular regional differentials varied over time and were generally
much smaller in periods before the current recession and when plant size
was introduced (R1, R2, R4). This research was quoted in the
evidence of the Welsh Government to the Pay Review Bodies which argued
against the introduction of market-facing pay (C6).
In the Autumn statement 2012 the Chancellor announced he would not be
pursuing market-facing pay in the public sector, "this means continuing
with national pay arrangements in the NHS and Prison Service and we will
not make changes to civil service arrangements either".
Margaret McEvoy, Deputy Director and Chief Economist Office of Manpower
Economics stated 2012, "In December 2011 the Chancellor asked the Pay
Review Bodies to consider how to make pay more market facing for certain
remit groups, including Agenda for Change staff in the NHS, teachers,
prison staff and senior staff in the public sector. He noted that there
was substantial evidence that the differential between public and
private sector wages varies substantially between local labour markets.
The research 'An investigation of the IFS public- private sector pay
differential: a robustness check' by Blackaby Murphy O'Leary;
and Staneva (2012) on overall public-private
sector pay differentials was timely and its finding that for many
regions the differential is not significantly different from zero played
a valuable role in helping Review Boards assess the evidence on the
issue. The research has been referenced in a number of the reports"
(R2, R3, C7, C8).
Subsequent research by the ONS (2012) found, when introducing
organisational size into wage equations, that the public/private sector
differential fell from 7.3% to 2.2%. Ole Black, Deputy Director, Public
Policy Analysis Division ONS stated in 2013, "An important priority
for ONS was to improve our model to assess public and private sector pay
differences to help provide independent evidence to inform the debate
and policy on regional public sector pay. As part of this work we looked
at and evaluated external work across a wide range of organisations. One
piece of work that was particularly useful was the analysis carried out
by Swansea University which offered new insights into some of
the variables that influence the pay gap. A particular area of interest
was the use of firm size within our model which we had not considered in
our earlier work. Having studied the work of Swansea on this variable we
then explored using this within our model, which improved our analysis
and offered new insights".
In summary impacts include a) research that provided the needed support
for the introduction of ProAct in Wales (safeguarding 10,000 jobs) and b)
an important input into the debate initiated by the Chancellor of the
Exchequer in 2011 for more market facing pay for over 6 million public
sector employees in the UK, subsequently abandoned in 2012, which would
have resulted in millions of public sector workers in relatively less
prosperous areas of the UK seeing a reduction in their real wage rate.
Reflecting their research on the Welsh economy, and the labour market in
particular, members of the team have been in demand by the press and media
to discuss issues in the areas of unemployment and public sector pay.
Since 2008, they have undertaken 4 media appearances for the BBC
nationally, 14 for BBC Wales, 3 for ITV Wales, 2 for national radio, 28
for BBC Radio Wales and numerous interviews for the press. Blackaby
was also extensively interviewed for two BBC Wales, Week-In Week-Out
documentaries on unemployment in 2008 and 2009. http://news.bbc.co.uk/1/hi/wales/8326865.stm
"Given his research in the area of labour markets and knowledge of the
Welsh economy Professor Blackaby is our first port
of call on a number of labour market issues particularly unemployment."
Kathryn Chadwick, Producer, BBC Wales Current Affairs.
Sources to corroborate the impact
[C1] Welsh Government 10,000 plus jobs in Wales backed by ProAct.
[C2] Short, Lefaucheux and Hirst (2011) Impact Evaluation of
ProAct, Cambridge Policy Consultants Ltd. http://wales.gov.uk/docs/caecd/research/impactevaluationproacten.pdf
[C3] Welsh Government (2005) Annual Report on Government Funded
Economic Research In Wales 2004.
[C4] BBC (2009) Taxpayers' cash for steel plants. http://news.bbc.co.uk/1/hi/wales/8293861.stm
[C5] OECD (2008) A Review of Local Economic and Employment
Development Policy Approaches in OECD Countries. OECD. http://www.oecd.org/cfe/leed/42768683.pdf
[C6] Regional and Local Market pay in Wales: Evidence Summary
Submitted for Consideration by the Pay Review Bodies May 2012 Welsh
[C7] NHS Pay Review Body: Market-Facing Pay, Presented to
Parliament by the Prime Minister and the Secretary of State for Health,
December 2012 Her Majesty's Stationary Office.
[C8] NHS Pay Review Body: Twenty-Seventh Report 2013, Presented to
Parliament by the Prime Minister and the Secretary of State for Health,
March 2013, Her Majesty's Stationary Office. http://www.ome.uk.com/NHSPRB_Reports.aspx
Government Enterprise and Learning Committee minutes (EL(3) 08-09.