by Alasdair Rutherford
Since 1997 the UK Government has sought to expand the provision of public services by the independent nonprofit, or “voluntary”, sector. As a result, the voluntary sector has grown dramatically as the increasing use of commissioning and competitive tendering has exerted many market forces on the sector from which it had previously enjoyed some shelter.The value of government contracts with the voluntary sector increased from around £2 billion in 1996/97 to £6.88 billion in 2005/06. This has increased the importance of the sector, both as a significant employer in the UK and as a key part of public service provision. In 2003 earned income overtook donated income as the most significant source of funds for UK charities.
Much has been made of the distinctive advantages of the voluntary sector, rooted in the profit-distribution constraint and the “warm glow” of motivated workers. We ask, what effect has the expansion of the sector had on the make-up of the voluntary sector workforce?
This paper examines the effect of the sector’s growth on pay levels and the wage differentials between sectors. Using data from the UK Labour Force Survey (LFS), we find that while there is evidence of lower voluntary sector wages in 1998, this gap has been closing over the past ten years as the sector has experienced faster wage growth than either the private or public sectors. The convergence of voluntary sector wage levels on the public sector wages has significant implications for the contracting-out of public services.