Salary

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A salary is a payment from an employer to an employee.

In the public sector the government has generally allowed salaries to increase above the rate of inflation and this has enabled public sector workers to bid up house prices e.g. doctors and teachers salaries. Were as in the private sector, excluding banking, salary awards have tended to be limited to the rate of inflation, as measured by the CPI, or less as employers have had to compete with low cost economies such as China.

While the increase in public sector pay may be justified, in terms of GDP it none the less is contributing to consumption as opposed to investment.

The total salary that a person is paid can be made up of several elements such as:-

The big difference between the public sector and private sector pay is that in the private sector the basic pay may be low however, it is often topped up with Bonus payments (when the company is making healthy profits). Also a private sector pension is typically of the "Defined contribution type" i.e. where the investment risk remains with the employee. However, in the public sector the basic pay tends to be high however, few get bonus payments. A big advantage of working in the public sector is that the pension tends to be of the "final salary type" and index linked to inflation. This protects the public sector employee from the effects of an economic slow down or rising inflation as the risk is remains with the tax payer (see Council Taxes for an example).

In summary, the significant rise in public sector pay and the index linked final salary pension schemes have made many public sector employees wealthy and thus able to bid up house prices. In addition, as there is no risk then public sector employees do not have to rely on house price increases to fund there retirement.
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