Marvin OnumonuThe Institute for Fiscal Studies (IFS) found that around 590,000 people work in the public sector in Scotland, making up 22% of the workforce, which is higher than in England at 17%.
Public sector employment in Scotland has increased by 56,000 since 2017.
This growth is faster compared to other UK regions, except Wales.
Over the past few years, the Scottish Government and councils have agreed to pay rises for public sector workers that exceed those in the rest of the UK.
Between 2019 and 2024, public sector pay in Scotland rose by 5% after inflation, while in the UK it remained largely unchanged after inflation.
This has led to a pay premium for Scottish public sector workers, with a newly qualified teacher earning £33,594 in Scotland compared to £31,650 in most of England, and a newly qualified nurse earning £31,892 compared to £29,970.
Prioritising public sector pay is seen as a choice made in response to recruitment and retention challenges elsewhere in the UK.
However, with a £27bn annual paybill, this approach poses financial challenges for the Scottish Government.
Funding from the UK Government is based on spending per person in England, raising the need for Scotland to find extra revenue or cut spending elsewhere to support its pay policies.
The impact of higher pay on retention is not clear, as retention rates have been closing the gap with England despite rising pay in Scotland.
The Scottish Government is encouraged to research the effects of these pay policies on recruitment and retention.
Jonathan Cribb, associate director at the Institute for Fiscal Studies, said: “Scotland has not only increased the number of public sector workers more quickly than other parts of the UK, it has also increased their pay more quickly.
“While these are reasonable priorities for Scotland, it adds to the Scottish Government’s fiscal challenges, given that funding from the UK government will not reflect these Scotland-specific decisions.”
Cribb added: “It’s not obvious from the available data that higher public sector pay growth has delivered benefits in terms of improved staff retention.
“The Scottish Government should undertake or commission research to understand better the impacts of its pay policies, and consider targeting future increases in pay where there is clearest evidence of recruitment, retention or motivation problems.”
