THE pay premium enjoyed by public-sector workers has fallen because of the UK Government's austerity squeeze, but their wages are still ahead of those in the private sector, according to two reports by a leading think-tank.

The Institute for Fiscal Studies (IFS) found public-sector workers on average earned four per cent more than their private-sector counterparts, down from five per cent in 2012. It also says the gap is set to narrow to just two per cent by the start of next year; the same as pre-recession levels in 2007.

The institute explained that, since 2010, public-sector pay had been held back so the difference opened up during the crisis had been closed. However, the gap was larger when taking into account generous pension arrangements in the public sector, despite reforms by recent Governments.

In Scotland, some 544,000 people, or 21 per cent, of the working population, are employed in the public sector, down from 23 per cent last year; which is the lowest proportion since such data collection began in 1999.

By contrast, just over two million people are employed in the private sector in Scotland, a rise of 130,000 or seven per cent on 2013. This now accounts for 79 per cent of the workforce; the highest level since such data collection began 15 years ago.

The IFS said take-home pay in public-sector jobs was eight per cent higher for women than in the private sector; although for men there was no significant difference. Those with low wages and low levels of qualifications were better off in the public sector, with the difference widening in 2011 and 2012 as they were partially protected from squeezes on pay.

But better qualified high-­earners tended to earn more in the private sector, the think-tank found.

The study also said that, while public-sector jobs were better paid in Wales, Northern Ireland and south-west England, in London and south-east England the gap was close to zero or in some cases private sector pay was higher.

In a second report, the IFS acknowledged the effect of reforms on public-sector pensions. It said the value of employer contributions to these would have risen from almost 25 per cent of salary in 1997 to almost 35 per cent in 2011, were it not for changes due to factors such as increased life expectancy.

While most public-sector ­workers were members of more generous defined-benefit schemes, the proportion of public-sector workers in such schemes had fallen from 38 per cent in 1997 to just 12 per cent in 2012.

This meant that in that year, while the public-sector pay premium based on wages was five per cent, it was 17 per cent when pensions were included.

Jonathan Cribb for the IFS said the "uncomfortable truth is it is lower paid workers, women and those in poorer regions who do best in the public sector relative to the private sector".

He added: "The biggest difference between public and private sectors remains the value of employer contributions to public service pensions. These are on average much more generous in the public sector than in the private sector."