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Local Wages need Local Decisions

by on March 19, 2012

The national pay rates should be scrapped. Localized wages are a good idea lets hope the government allows the decisions to be local too. We do not want central mandarins setting local wages. Unions have reacted angrily to plans to scrap national pay rates for some public sector workers in the UK. Yet this is a one of the better plans put forward by the Chancellor.

Private Companies do not pay IT analysts in Bangalore doing the same job, the same wage as their equivalent employee in Zurich. They would be mad if they did. In Bangalore the same talent is willing to work for a lot less and the cost of living is considerably less expensive.

Due to the low wages and ample IT talent India is able to attract lots of work. Why deny different regions in the UK that same opportunity? Brendan Barber of the TUC believes that this will drive workers to better paid regions. If this is so, those regions will be able to decrease their wages as there will be an ample supply of employees whereas lower paid regions will need to increase their wage to attract talent. People seem to forget the more important effect. Localized wages will also allow companies to make the opposite move. More companies will move North where wages are lower and no longer inflated by a national wage. This will increase employment and wages in the north. Wages should converge.

Eric Ollerenshaw MP is wary of the North South devide on the Conservative Home Page. He is right to point out that a focus on private investment and not public services is the way forward. A more regional approach would solve the problem private companies face when hiring people in areas with a high dependence on the public sector. Currently private companies are being out priced by a public sector which pays more than the private sector, with greater benefits. This leads to private companies using less labour than they would otherwise to be competitive, or not moving North at all.

There is one big caveat that may emerge in Osborne’s plan. It is conceivable that instead of setting a central national wage, the same central bureaucrats in London will determine the regional wages. This is still wrong. How does the central authority know what the going rate is? Central mandarins setting wages should be avoided. Public sector institutions should compete on the local labour market and allow their local branches to hire local employees at local rates.

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