You really should try broadening your reading beyond the Sunday Independent.

The term Public servants has become somewhat of a misnomer as most “public servants” and their unions are blatantly serving their own vested interests first and foremost and then finally, if they really must, the public last.

We have an apartheid system opening up whereby the “public servants” are telling the rest of us that we had better borrow to pay their bloated wages and pensions and jobs for life agreements. Otherwise, if we don’t accept this Faustian pact they will lay down their pens and bring the country to an even bigger standstill that it is at and then the “boomier” times will really be at an end! Simultaneously, those in the private sector have to accept higher unemployment and rocketing taxes and banish the notion that there will be any jobs there for at least a decade for our children.

This borrowing for current consumption is crass indefensible economics and governance and only idiots like Bertie and Brian Cowen believe that we can borrow our way to a “boomier” economy sometime in 2015 or beyond. Who in God’s name would prefer to hide behind mathematical equations when the truth is staring them in the face. What economy pays out 180,000 Euro per day to health “professionals” to stand around and do no work. Yes! no work! At the same time denying cervical cancer vaccinations and vital operations to the nations children at Crumlin hospital and Cowen says the minister is doing a fine job.

The answer to my rhetorical question is, only the very depraved of individuals and only those who refuse to accept the prospect of national bankruptcy staring them in the face.

The system of budgeting in this country is simply criminal it is one where politiciansgive away mega pensions and other privileges to public sector unions as long as these commitments have to be met down the road on somebody else’s watch. Tomorrow Mr. McCarthy will let some light shine on the public sector and we will begin to see where some of the waste is. It is all very fine for Cowen to write whatever cheques are necessary for the banks when he is using somebody else’s cheque book. Maybe he should bite his own bullet and go before he is ejected from office.

If it is difficult to fire workers, like in the government, they stay on accumulating senoirity.

The government can decide to hire over qualified people for jobs. While the private sector tries to use the least qualified persons that can get a job done.

Creating restrictive work rules like designating only certain professionals can do certain jobs is something a government can do more easily than a private sector business, where job categories need to make more sense.

Like all differing income streams to compare them you need to adjust for risk. The risk profiles of government workers seem to be very different from private sector workers and hard to quantify. Public sector income streams from the US state of California and the country of Iceland may not be secure, or may be rock solid, who knows. In the last days of the Soviet Union private sector employment was likely much better than public sector employment.

I imagine timing of payments is also important if a present value calculation is to be made.

apologies for typo, you are correct.

I think by @Joe above, you actually meant @John.

My analysis concerned only the gross benefit of the public sector pension. Your point is well made. But it concerns the net benefit (or cost) of public sector pensions which I didn’t address.

My key point remains. We are discussing public/private pay differentials and yet don’t have an authoritative analysis of the benefits of public sector pensions (gross or net) - that is a pretty large gap in our discussion.

Does anyone have suggestions to fill that gap?

The figures I quote are from the Bloomberg economic database. The original data source is Eurostat. The Irish figures are from the same source.
I note also these data exclude agriculture, fishing and government.
I did not make them up.
I am interested to note your approach is not to debate the data but to challenge the integrity of the opposition.
moreover, in all the cut and thrust you have yet to answer the substantive questions. Is the public sector overpaid and what should we do about it other than hoping that incomes in the private sector increase at 4-5% and further hoping that we can keep inflation in the sheltered sector below that for a generation.
A respone to eoin’s post above would be appreciated.

You are making some figures up.

Tell me where on your source are all the figures you quote? Which column?

I challenge you to do that. If you don’t, it will be clear you made some up.

Here’s the link to your source again to make it easy for you.

http://sdw.ecb.europa.eu/browse.do?node=2120787

Two columns do indeed give a figure of 106.6 for end 2008 (2008 Q4).

But, both only go back to 2000 Q1. They contain no figure for end 1998.

For the record, the figures they do give for EZ are:

2000 Q1 73.2
2009 Q1 96.2

an increase 31.4% in 9 years - not 5.7% in 10 years.

The source contains no figures for Ireland.

“But, among the 12 or so countries of northern Europe that have similar GNI to Ireland, they are among the lowest”

The point is that our competitive position relative to the those 12 countries disimproved significantly during the boom for no other good than we decided to pay ourselves more, because we considered ourselves worth it.

Our infrastructure continues to lag behind those countries, in fact that infrastructural deficit has widened if anything due to our pathetic level of broad-band penetration.

Our enterprise capability has improved little over the period and we are still over-reliant on FDI and under-performing at indigenous innovation.

So there was no good reason for Irish wages to have caught up on the richer European countries during the period 2002-2008, other than our unsustainable credit-based construction and consumption boom. To try to hang on to those gains now, while hitching our wagon back onto average European wage inflation, is completely non-sensical.

Either we track European average wage growth or we don’t. Realistically, we can’t exceed it for years for no sane economic reason, but then consider it a floor going forward when it suits us.

Note that if our recent wage inflation was based on real, sustainable economic activity, as it was in the period 1997-2001, then I’d tend to agree with you. But the growth that happened since 2002 was built on sand. Let it go, it never really existed in the first place.

end 1998 end 2008 % change
Ireland 89.8 151.2 +68.3%
EZ 100.8 106.6 +5.7%

As other contributors have referenced the EZ labour market has seen precious little labour cost inflation over a decade due to high unemployment and competitiveness pressures from an appreciating currency…sound familiar.

In that context, if that is what lies ahead of us, then there is no scope for the closure in the pay differential between public and private wages in the absence of pay or allowance cuts. This adjustment is so neccessary on i) grounds of social solidarity and ii) because the deficit is unfundable in the absence of quantitative easing.

Moreover, I still think you contention that we retained external competitiveness at the end of 2008 is problematic given the deterioration of the current a/c balance from 0% to near -5% by end 2008.

“Given our far superior manufacturing and export performance in 2009,
Ireland is clearly highly competitive relative to other EU countries.”

What is striking about the US-owned pharmaceutical/medical devices sector is that it is responsible for almost all the increase in industrial output while most other sectors have had double digit losses.

However, thus far, the increase in pharma has had little impact on employment.

Enterprise Ireland said today that client companies grew exports by 3% in 2008.

The food sector accounting for 57% of exports from the indigenous sector, had a 1% growth.

As about 50% of exports go to the UK, the drop in sterling had an impact on performance but companies like Glanbia and Kerry had bumper years in 2008 because of the food commodity boom, which should have provided some offset to lost business in the UK.

Apart from the issue of wages, the total cost of doing business e.g rents and high indirect taxes (the price of a new car in Ireland is 30% above the Eurozone average) , would have made it difficult to sell to the likes of Aldi and Lidl for the German market.

During the boom, I supported the phased introduction of a mandatory pension in the private sector.

The message for private sector workers from this Government, is that without the force of collective power, they are taken for fools.

Could the same be said of public sector workers and farmers?

e.g. benchmarking; the surrender in 2001 to the IFA demands for bonanza compensation for land used for roadbuilding - - many of the beneficiaries were millionaires on EU public welfare!

The Minister for Finance Brian Lenihan said last February that the total cost of a State pension for an Irish public sector worker, hired after 2004, was 26.1 per cent of pay, and the employee paid on average 4.8 per cent of the cost, before the introduction of the Government’s controversial pension levy.

CSO data here shows comparisons between clerical staff in industry and the Electricity/Bord Gais sector.

http://www.cso.ie/releasespublications/documents/earnings/2008/earnlabcosts_q32008.pdf

In addition to the disparity in earnings and the fact the majority of private sector workers have no occupational pension, in the State entreprises, shares have been given to staff.

Eurozone unit labour costs 1999-2007

http://www.ecb.int/press/key/date/2008/html/sp080317.en.html

I don’t believe any well run company would wish to cut wages unless it was forced by market conditions.

My own view is that companies should decide on a lean orgainsation for the crisis, rather than incrementally cut which is a death knell for morale. For the remaining staff, the company could cut the basic but should offer a credible incentive system to fight for new business.

actually, the more and more i think about this, the more nonsensical your theory/plan is. Basically its win-win-win for the public sector employee:

-they start out with the positive pay gap in their favour
-the private sector suffers pay freezes and jobs losses
-the public sectory sees no jobs losses
-if inflation goes up, they get at least some benefit of it
-if inflation goes down, then nothing happens
-we assume there’s constant and never ending productivity gains
-we base upward only pay reviews on the basis of how the rest of the EU and the Irish export sector get on, regardless of whats actually happening here in the Irish domestic economy.
-all the while there’s a massive fiscal deficit being run up to pay the public sector pay bill, which the private sector is forced to fund (on account of most employees being private sector)

In any of your suggestions and scenario’s, is there even a minor downside to the public sector employee???

please note that when i say that current private sector wages are “not out of whack”, i also clarified it with “as they are right now “, by which i mean to include the adjustment that they have already taken this year, which i believe was badly needed. This would refer to either the outright pay cuts taken by some workers, as well as the wage freeze taken by an awful lot more. Moreover, i believe that these actions by the private sector, in the midst of ballooning unemployment, will also see the employers under absolutely zero pressure to raise wages by any significant amount for the next couple of years at a minimum. Most people will view keeping their job at the same pay level as a very acceptable outcome from their year end review.

However, in addition to this, what is probably key to the problem (in my view) with John’s plan, regardless of the merits of closing a pay gap as a policy measure rather than as a result of economic forces, is that John assumes we can let the combination of inflation and productivity do the job for us, and that we can assume rather than hope for these factors to be prominent in the coming years.

All i can say that if you look back at the banking crisises in Sweden, Finland and Japan in the 1990’s, all of which have stark similarities to us, inflation collapsed in their aftermath. In Japan inflation is still anaemic almost 15 years after the crisis first hit, and they’ve basically printed and borrowed government debt almost non-stop over that period. And we don’t even have the option of devaluing our currencies like these countries did. Also to consider is that the ECB hasn’t even suggested its willing to consider printing cash to inflate our way out of this problem.

To assume inflation runs at historical averages, in IRELAND, when so much economic activity revolved around the property, construction and financial sectors, over the next 5 years, is based more in hope rather than on reasoned argument.

When I typed “Eurozone Labour Cost Index Work day adjusted” into google, I got this link.

http://sdw.ecb.europa.eu/browse.do?node=2120787

I think you have misinterpreted the figures. And they are in fact broadly in line with what I claimed. However, I’m obviously biased. Given that this is an economics website, there is bound to be someone else with statistical expertise and less biased than me who can confirm that.

From what I can see, the figures in most of the columns are the y-o-y increases, not the total increase since 1998. And they are mostly in the range 3%, 4%, 5%. So, the 5% increase (actually 4.4%) you say is the increase since 1998 is actually the increase between 2008 Q1 and 2009Q1.

Regarding the big fall of 10% q-o-q in 2009 Q1 which you detected, these are in the columns where it specifically says ‘not seasonally-adjusted’. There is is similar fall shown in Q1 of every year, followed by an equally large rise in Q2 of evey year, then a small fall in Q3 and a bigger rise in Q4, leaving the y-o-y increase at around 4%. So, the 10% fall q-o-q in 2009 Q1 happens every year and is clearly something to do with seasonal employment and meaningless for analysing the long-term trend. The quarterly y-o-y increases, for which seasonal adjustment is irrelevant, are as I mentioned above.

If anyone with staistical expertise thinks my analysis of the figures is unfair, feel free to point out my errors.

Might I suggest that you read the Deloitte Remuneration Survey for 2007. I have provided a link below.

Even at the height of the boom in 2007, total employment costs in Ireland (average of private and public) were well below the EU15 average. They have undoubtedly come down since. They are certainly higher than in the much poorer Mediterraenean and eastern European countries. But, among the 12 or so countries of northern Europe that have similar GNI to Ireland, they are among the lowest, far below levels in Germany, France, Belgium, Sweden, Finland and Denmark.

http://www.finfacts.ie/biz10/Rumuneration2008.pdf

sorry my IT skills are poor but my source is Eurostat and the time series is Eurozone Labour Cost Index Work day adjusted -showing the development of hourly labour costs incurred by emplyers. It is a quarterly index which includes wages, salaries and other labour costs.

Your argument in favour of parity of wage increases with comparable EU countries is undermined by the fact that during the boom wages here increased much faster than the European average.

If we only now revert to the European average, then the previous increases above-the-odds are permanently burned into our cost base.

So effectively you appear to consider the European average as a floor for Irish increases … i.e. we may well significantly exceed the average for a sustained period, but when the hard-times roll, we cannot countenance falling below the average.

Another way to look at it would be to admit to ourselves that we over-shot average wage growth by a significant margin and we need to give up those “gains” as they were based primarily on credit-feulled inflation. Once the “froth” of the boom has blown away, we can then revert to sustainable wage growth somewhere around the European average, based on real economic activity as opposed to a debt-driven house of cards.

No sleight of hand intended. My point was that my public sector pension is integrated with the PRSI system.

You’re right though that counting the PRSI payment as though it is the contribution to the state pension isn’t quite right, since there are other types of social insurance (though the idea that we have a separate social insurance fund is a bit of a myth anyway). However, it’s not clear which direction this observation goes in. The question here is what would be the cost to workers of putting aside enough money to make up for the loss of the state pension—it might be less than the PRSI contribution, it might be more, it would depend on the person’s income.

Here is a link that was posted (not by me) in another thread on this site a few weeks ago. Its data from the Federation of European Employers.

http://www.fedee.com/paytrends.html

I told you that your figures were bonkers. This proves it.

And I mean a link to a true source like Eurostat or the CSO, not to some claim made by the IEA, IBEC or ISME.

Your figures are bonkers. Supply a link to the source for them, the same as I’ve supplied a link to my source.

To be precise about it, I never said that private sector wages should rise by 4% to 5% annually. I said: “Allow private sector wages to rise at the same rate as in comparable EU countries”. That’s my criterion: “parity with comparable EU countries”. I did then put in brackets ( ) the Eurostat figure for what annual wage rises in other EU countries actually currently are, which is indeed around 4% to 5%.

If the situation in other EU countries changes, and annual wage rises in those countries fall to 0% or 1%, then, using my yardstick of “allowing private sector wages in Ireland to rise at the same rate”, I’d have to concede that the same should happen here. And, in that eventuality, it would probably be necessary to cut public sector wages to bring them into line with private sector wages.

However, I think this is unlikely. Wages in other EU countries have been rising by around 4% to 5% annually for decades. That’s the average. Some are below, many are above this figure. The following link gives details of annual wage rises in EU countries in the past decade. I don’t see why things should change in the next decade.

http://www.eurofound.europa.eu/eiro/studies/tn0804019s/tn0804019s.htm

In addition, given the usual productivity increases of 2% to 3% in most EU countries, annual wage rises of 4% to 5% are consistent with the ECB target of 2% annual inflation. If annual wage rises in the EU as a whole fell to 0% or 1% long-term (as Eoin hints), there would probably be negative price inflation long-term in EU countries, and its very unlikely the ECB would allow this. In fact, I’d say a higher rate of both wage and price inflation is far more likely in the next few years not only in the EU, but in the UK and US, because of the mega-billions they are printing to get the global economy out of recession.

So, I think that my working assumption that wage rises in other EU countries will be in the region of 4% to 5% annually in coming years is fairly sound. That leaves Ireland! If it is being suggested that, because of unemployment, wage rises here will only amount to 0% or 1% annually, even if 4% to 5% annually in other EU countries, then this would be totally unacceptable. It would be up to the Trade Unions to prevent it. For the record, I would be equally opposed to wage rises in Ireland significantly exceeding those in other EU countries. My suggestion that wage rises in Ireland simply match those in other EU counties is perfectly sound and sensible and, on the reasonable assumption that wage rises in those other EU countries continue at their recent rates of 4% to 5% annually, this would allow ample scope for private sector and public sector wages in Ireland to be brought into line.

I notice a change in emphasis from those advocating massive wage cuts in Ireland. Until recently, we were being told that they were required because exporting companies had lost competitiveness, that exports had collapsed and that we could no longer export our way out of a paper bag. This is what we were told by the two Brians (Cowen and Lenihan), Alan Ahearne, and the two Fitzgeralds (Garret and John). But, Ireland’s export performance in 2009 has destroyed that argument. So, now we are being told that its non-exporting companies that most need the wage cuts.

In fairness, Stuart and Eoin are not the ones I have most in mind when I attack those advocating massive wage cuts. Stuart seems content with a pay freeze this year and a small rise next year. Eoin concedes that private sector wages in Ireland currently are “not massively out of whack”. Both these points of view are quite reasonable when compared with those of the two Brians, Alan Ahearne, and the two Fitzgeralds, all of whom have called for 15% pay cuts right across the whole economy (even when, as I pointed out above, they are rising by 4% to 5% in other EU countries).

Even the mere threats of such massive cuts in wages, let alone their implementation, are having a very damaging effect on consumer confidence and consumer spending in Ireland. As Davy point out in their Morning Bulletin today, one of the reasons for the collapse in consumer spending in Ireland is the unprecedented increase in the Savings Ratio. People are afraid to spend, and are simply saving instead. Part of the reason is down to unemployment, but its not the sole reason. Another part is due to people being told 24/7 by all the power-that-be that everyone must accept massive pay cuts in order to restore competitiveness when, as the manufacturing and export figures show, we are perfectly competitive at current pay rates. Quite naturally, if everyone is told by government ministers and sundry economists that they must accept a 15% pay cut in the coming months, they’ll probably immediately cut their spending to bring it into line with their perceived future and reduced income. This seems to be part of the reason for the increase in savings and the collapse in spending. Whatever about public sector wages, which is a separate issue, the two Brians, Alan Ahearne, and the two Fitzgeralds should now admit that they got it wrong about Ireland’s competitiveness and that there is no necessity for across-the-whole-economy pay cuts, although some individual companies might require them.

That sleight of hand with your PRSI being taken entirely as a pension contribution is commonly echoed throughout the public service, but I’m very surprised to hear it from an eminent economist.

PRSI is like any other type insurance, effectively an exercise in the pooling of risk. Though with the important difference that there is no account taken of one’s individual risk in determining the premium paid by an individual. Think of it like car insurance without a no claims bonus or a young-male-driving-a-Honda-Civic loading. And by the way, even if the risk of a public servant finding themselves unemployed is low, it is not zero.

So your PRSI contribution is most certainly not solely a contribution to your state OAP. Rather it is paid into the Social Fund that covers current benefit payments made to private sector workers who find themselves unemployed or former public sector workers on fixed term contracts that haven’t been renewed.