Most public-sector wages in the UK are set nationally. A police officer in rural Cumbria earns the same as a police officer at the same level in urban Bristol. This perhaps seems fair — why should people doing the same job get different wages just because of where they live?
However, recent research suggests national pay setting in the public sector can have unintended consequences. Specifically, it can lead to differences in the quality of public-sector workers across regions. Two related concepts in economics help us understand why this might occur: opportunity cost and the outside option of potential recruits.
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