ESR Paper on Public Sector Pay

Presumably, a long thread will now develop where the various protagonists with long-held positions will stake their claims in predictable ways. (Relatively) disinterested by-standers might usefully focus on issues of equity and fairness – if not implicit contracts – in dealing with a public sector worker who has been led to expect, over many enturies of experience, that his nominal wages never go down. Inevitably, the fundamental budget constraint will prove binding: the public sector wage bill will fall or we will hand over what’s left of domestic policy-making to Frankfurt (more explicitly than we have done so already).
Can we have some practical suggestions as to how this can be done? Less theory and more realism please.

“Less theory and more realism please.”

OK — clearly the first benchmarking award was a sham.

The deck had already stacked by excluding pensions.

As the trade unions had pushed for the first benchmarking review, why should they object to a benchmarking review based on the facts, not constrained by ministerial terms.

Why should anyone object to having the CSO and the ESRI do credible comparisons?

@ Eoin,

Not so sure the productivity gains are not achievable. Again, I have done nothing to back up this hunch, but my own experience suggests getting current (well-trained and qualitified staff) to work 20% harder for the same pay is alot more feasible than getting them to continue to work just as hard for 20% less pay.

Plus, the productivity gains are permanent, whereas the wage savings from a pay cut are always going to be under threat of erosion when the unions come a-trampling to graze up the first of the green shoots.

@ Graham

i’m not saying productivity gains are impossible, i just think with a 20% pay gap to close we’re looking for quite a lot there! And this from a sector of the economy which has never been encouraged to go in search of significant productivity gains before.

If at least the threat of job losses, pay cuts and significant t&c’s changes is off the table, then i don’t see us having much of a stick to go with a somewhat boring carrot (static pay conditions). I think we have to at least create a sense that the public-service-as-is is under threat if we want to generate either significant savings or better value for money for the taxpayer.

@Eoin,

You may have a point. All I’m saying is the current focus on pay reductions is very disheartening to the public sector workers who are still motivated and trying to provide value for money.

I have nothing against them (“Some of my best friends are public sector workers…”) but maybe the impasse needs to be broken by offering a pay rise, accompanied by a real move towards stick-style incentives (like contract posts for all new staff and contract + bonus posts for existing staff).

I don’t know.

@ simpleton

i don’t know if i’d describe the arrival of an EU/ECB fiscal austerity team as “desirable”, but its certainly an event that you can start up a pros vs cons debate that has plenty of input on both sides of the ledger. Certainly, at a minimum, i think we need to understand the real threat of this taking place before we can draw up the collective courage to enact the necessary changes. Again, i fear we’ll do just enough to stave off this occurring, without doing enough to make any real long term difference.

Surely the conservation needs to begin first at:

What is the realistic role/duty of government in Ireland?

And then

How should it be populated to achieve this?

We have just come off an orgy of government excess of employment, regulation, outreach, expenses, etc etc. We cannot afford where we are.
And there seens to a mindset that we should eventually get back to where we were at the height!!
What is our long term achievable level of governance?

Makes sense to go back to first principles.

Al

@ Eoin

Yes, you are quite correct that private sector employers have the tools available to reduce pay costs. And, undoubtedly, pay increases in the sheltered (primarily public sector) sectors of the economy affect pay in exposed sectors, and should never have been allowed to do so.

The traditional tool of reducing costs in the public sector, devaluation, is no longer available. Given that we cannot devalue, reducing costs becomes more problematic. But, this is precisely the point: recognition that the problem is not ‘an overpaid public sector’ but a problem of fiscal policy options in a monetary union. This wider political economy matters.

This context is also lacking in statistical based models that result in media headlines: state employees earn more than 25% than private sector workers, which then fits nicely into the narrative building up to the budget: there are no alternatives, the unions are defending vested interests, wasting taxpayers money on inefficient public sector. The markets are objective so cut, cut and cut again.

Furthermore, there is a question of political legitimacy; asking someone on €34,000 to take a pay cut whilst transfering taxpayers money into the pockets of overpaid bankers via NAMA. Again, in terms of real choice, in real political decision making (where the issue of pay cuts will take place) such external concerns matter a lot, and remove any possibility of a co-operative trade union position.

So, anyone who thinks NAMA and pay cuts can go together are deluding themselves. If NAMA becomes law the trade union movement will never agree to re-negotiate pay (and neither will any rational citizen for that matter). Again, real decisions in the real political economy require an appreciation of qualitative difference.

Five years of Michael O’Leary running the show would sort them out very quickly and the deficit wiped out. No need for any IMF if MO’L was in charge of the Nut house that is the Civil/Public Service. I can see them and the Politicians every day rowing back the “cuts” in the Mc Carthy Report. It would be a Joke if it was not so serious. The Trade Unions are irrelevant whilst unemployment heads towards 20% unless they want to get it up to 40% fairly quickly.

@Al
First principles as quoted by Micawber in David Copperfield

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

@Ernie,

eoin is correct. Take the basic pay of a CEO of a typical Irish high street bank. Its fallen from about 2m to 500k in the space of 12 months. It is for other to judge whether that is over or underpayment.

@jl

Wow. It’s fallen from astronomical to stratospheric. Colour me impressed.

@ Mad Dog

Who do you have in mind when you refer to ‘non-jobs’ in the public sector? Nurses? Gardai? Teachers? Will you tell one of their number that they’re doing a ‘non-job’ next time you need their services?

‘Rates of pay found no where else in the developed world’? Care to back that up? It’s what’s known in the trade as ‘a lie’. Like another example? Here’s one:

‘The OECD commented on the performance of the Irish Public Service was that it was the worst in the developed world.’

Unlike you, I’ve actually read the OECD report on Ireland’s public service. You, apparently, couldn’t even be bothered to read the Executive Summary in which you’d find this: ‘While the reasons underpinning Ireland’s success are varied, the Irish Public Service has played a central role in ensuring that the right economic, regulatory, educational and social conditions are in place to facilitate growth and development.’ There is nothing in the document that comes close to saying what you say it says.

Is it any wonder that the country is going down the tubes when this sort of sloganeering à la the Sunday Independent is what passes for serious political commentary? And yet some, even after having been fed a steady diet of lies, half-truths and exaggerations bemoan the fact that the most egregious falsehoods ‘didn’t seem to get much traction in the media’.
Oops, should have mentioned good post! Waiting on the next one!

@Eoin

I work in the public sector. This time last year, our section had 13 people. Due to retirements and staff leaving, we now have 11, thanks to the hiring freeze. That’s a 15% cut in the staffing numbers but the same amount of responsibilities etc rests in the section, so everyone else has had to take up the slack. This sort of figure would be seen in other sections of the area of the public service I work in. We’ve also had draconian cuts in all of the ancillary expenses (supplies, etc.) which makes it increasingly difficult for us to even do our jobs.

Despite having an increase in workloads this year over last (overall, not just due to the staff losses), every last one of us has taken pay cuts (aka, the pensions levy) of 7.5% on average. Unlike those working in your firm, we know with certainty that there is no prospect that any of these pay cuts will ever be reversed. That is why we’re going to fight them tooth and nail.

This is the planet I live on. I remind you that nothing you have said infirms my main point: in the absence of countervailing pressure from trade unions, the private sector squeezes its workers (like you) whenever it can and remunerates its fat cats disproportionately whenever it can.

Furthermore, if recent articles in the Irish Times are to be believed, there is little evidence that the experience at your firm is typical and that most employers are cutting staff or pay. It is simply assumed whenever the subject of cutting public sector pay comes up. But I can assure you that 100% of the public service has taken a large pay cut. If another is imposed, we’ll be out in the streets.

@Ernie

The trials of you and your colleagues are not really comparable to what’s going on out in the jungle.

For a start, you can *choose* to pick up the slack, or choose not to, with no real sanction in the latter case. For every conscientious public servant like your good self, you must know that there are many who do only the absolute minimum unless there’s a promotion or pay rise in the offing.

The waiting time for jobseekers allowance in Edenderry is now 22 weeks, because the local CPSU members are dragging their feet on decisions with a view to leveraging a few promotions to HEO level. That’s how low folks are willing to go, despite the suffering it causes the newly unemployed … i.e. those who until recently paid the taxes that funded the benchmarking lark. It speaks volumes that the CPSU members feel no sense of duty towards these people, and that the Minister is powerless to compel them to do their jobs in a timely fashion.

Without the threat of redundancy for the lifers (as opposed to the last-in-first-out contractors), the public sector will never be as adaptable or flexible as the private sector. For the simple reason that it’s survival doesn’t depend on adaption, in fact the interests of individual established public servants are more closely aligned with maintaining the status quo at all costs.

Now characterizing the pension levy as a straight pay-cut is misleading. For a start, your tax-free lump sum and pension will be calculated on your gross salary. Secondly, even with the pension levy added to your 6.5% superannuation, you’re still getting an incredibly good deal on the pension. Anyone in the private sector would bite your hand off if offered a public sector style pension in return for total contributions of 6.5% + 7.5%.

Veronica
Yes. Reform is long overdue. There are too many ranks. Two long pay scales. One for us and one for them! Starting low but the pension is a real incentive. Anyway, people joining will be desperate! Proper reviews moderated by outsiders! Increases on achievement. Sack those who fail honesty tests. Make these tests compulsory for all public servants, including politicians! Set up a small unit to carry these out! Loss of all pensions!!!!!! SAVE! Possible prison time! There will be many early retirements as a result!

@ Proposition Joe

as i said way up above, if we take wage cuts/job losses/significant changes in working conditions off the table, as Ernie seems to be suggesting, there is no carrot & stick equation to make the public sector become more productive. We are left with the status quo of the private sector worker subsidising the public sector worker.

@Mad Dog

I note with interest that you think that a falsehood becomes true when it is repeated on RTE.

@Proposition Joe

You wrote: The trials of you and your colleagues are not really comparable to what’s going on out in the jungle.

For a start, you can *choose* to pick up the slack, or choose not to, with no real sanction in the latter case. For every conscientious public servant like your good self, you must know that there are many who do only the absolute minimum unless there’s a promotion or pay rise in the offing.

So, let me get this straight: your claim that our situation isn’t comparable is based on the assumption that because those in the public service could slack off, therefore they must be slacking off? And how have you come to that conclusion? Because they have permanent jobs? You think that the only thing that motivates anyone to do a job is the threat of losing it?

It’s an interesting view, one not borne out by my experience.

Now, you also seem to assume that the public sector needs to be ‘adaptable’ in the way that the private sector does. This is twaddle. The private sector needs to be adaptable in that way because the economy is cyclical and businesses have good years and bad. But the public sector, by definition, serves the public: protects them, heals them, teaches them, etc. There’s very little that’s cyclical about this.

Now maybe you think that what we need to ‘adapt’ to is the criminally incompetent mismanagement of taxation and regulatory policy that resulted in a catastrophic shortfall in tax receipts, sick people and children be damned. That’s not a view I share.

As for the pensions levy, it really is the gift that keeps on giving for the Brendan O’Connors and Eoghan Harrises of this world. It allows all of you both to cut the pay (drastically) of the entire public service and to claim, in almost the same breath, that you haven’t cut their pay at all! Which, leaves open the possibility of really cutting it later.

Let the record show, however, that the government’s original idea was to cut the pay of the public sector across the board. They only came up with the idea of the special surtax on those serving the public when it was pointed out that what they were proposing to do would likely not withstand a legal challenge.

The fact is, the pensions levy is a pay cut by another name, no matter what the gullible can be convinced of. If they’d called it a ‘peace levy’ you’d be telling us that it wasn’t a pay cut but just our contribution to world peace and sure we all have to make sacrifices for peace.

@Eoin

I believe you’ll find that public sector wages did not keep up with either growth in GDP or growth in GNP over at least much of the period in question. Allow me to quote the OECD report on Ireland’s Public Service. Their dates don’t exactly correspond to yours but aren’t far off:

Despite major spending increases over the past 10 years, expenditures in the public domain, i.e. services funded by government and provided by government or the private sector, are small as a percentage of total GDP, compared to other OECD countries. This is because Ireland has traditionally had a small public sector, and so recent increases have been part of a process of “catching up” to more typical OECD levels. For example, amongst 25 OECD countries for which data is available, Ireland ranked third to bottom in terms of public expenditure as a share of GDP in 2005 with 34.4%, above Korea (28.9%) and Mexico (19.5%) (Table 2.2), even when factoring in infrastructure investment.

“Much of public spending in Ireland is allocated to social protection and both the health and education sectors. The public functions experiencing the highest real average annual increase in expenditure over the 1995-2005 period were environment protection (10.34%) and health (9.21%). Given Ireland’s strong economic performance, however, public expenditure as a percentage of both GDP and GNI has actually decreased over the past 10 years. Ireland’s real average annual growth rate in public expenditure between 1995 and 2005 was 5.1%, and was therefore actually growing slower than both GDP at 7.5% and GNI at 6.6%. Although spending on education increased annually on average by 5.52% between 1995 and 2005, for example, its relative share of GDP decreased from respectively 5% to 4.3% of GDP and from 5.7% to 5.1% of GNI over the same period.”

That may not correspond to what you’ve read in the Sunday Independent but it does correspond to my memory of what actually happened. I remember several national wage agreements where what was given to workers did not keep pace with either growth in GDP or with overall inflation but where the unions were bought off with tax cuts to make up the shortfall. So, contrary to the myths put forward by IBEC and other interested parties, it was not the case that Ireland went on some sort of wild spending spree on the public sector. Rather what happened was that Ireland increased spending on the public sector to bring it closer to OECD averages while slashing tax rates to some of the lowest in the developed world. If things went askew during those years, the obvious way to right them is to increase taxes to something approaching those of our European partners.

@Ernie

Your understanding of how real economy works is, alas, imperfect. The (creative?) destruction of a bust is but one aspect to the adaptability of which I speak. Businesses fail _all_ the time, even at the height of a boom. Competition intensifies, technology advances, tastes change. All these forces require that successful companies constantly adapt, and for this the agility of their employees is crucial.

Why would these employees show agility when ‘twould surely be easier for them to kick back and insist that everything remains the same? Because they know that their job security, future pay rises, stock option value and even their ability to find another job if necessary are all tightly coupled with the success or failure of their employer. Their interests are _aligned_ with those of their employer.

The problem is that in the public sector, no such alignment of interests exist. New technology is not embraced, rather it is resisted … even when that technology can make the job easier, its introduction is blocked as leverage in other unrelated negotiations on pay and promotions. Similarly modern working practices are not welcomed on the basis that the service will become better, rather such reforms are held up to extort a pay-off. The indirect pay-off of a successful enterprise benefiting all stakeholders just doesn’t arise in the public service.

On the question of the cyclicality of the public service, you contradict yourself with your argument about public spending “keeping pace” with the growth in GDP during the boom. If you expect public spending (and public service wages) to keep pace during the boom, surely that is cyclical behaviour? And surely also, such spending should keep pace with the downward cycle? Unless of coure you’re invoking the magical upward-only logic of benchmarking?

And no matter how many times you say the pension levy is a pay cut, the fact remains that it is not. If it were, your 150% of final salary in tax-free gratuity would be reduced pro-rata. As would your 50% of final salary in guaranteed pension.

Starting a thread on public sector pay is pointless. When those who believe that pay rates are out of kilter with the labour market and with the reality of the public fiances they pound the facts. The Public sector unions pound the table and refuse t bend. I would do the same if I was in their shoes. The argument quickly degenrates into finger pointing and trading insults-just go over to politics.ie and wander into some of the threads on public sector pay.
The reality is that an external actor is about to enter into the process and force a cut in public sector pay rates. That actor is either the bond market, the EU/ECB or the IMF. Rising taxes to plug the gap is not an option because unfortunatley for the public service unions this country is still a democracy. There are more of us in the private sector or the reserve army of the unemplyed. We either cant or won’t pay for a silver plated salaries and gold plated pensions.
The Unions can threaten strike but I suspect hell would not freeze over before they would accept reality.

@Proposition Joe

Great news! Well if that’s the case then, at least on salaries we’ve nearly made all the sacrifices necessary. Just another 1.5% in addition to the 7.5% already cut and PS employees will have done their bit. Sounds like a deal.

@Ernie

You know well that a gross 7.5% pension levy doesn’t translate into a 7.5% reduction in the net public sector pay bill. Tax relief on the levy itself and the tax foregone on lost consumption would cut that saving in half, possibly more.

Also the cost of current pensions and retirement gratuities were unchanged by the levy. Plus, as is rarely mentioned by the unions, pay-scale increments of 3%-5% were actually paid to the majority of public servants during the past year.

So effect of the levy has been merely to contain the growth in PS payroll, there’s been very little (if any) reduction in 2009.

Now on your logic of “doing your bit” in the public service, should any reductions in public sector pay be (a) matched or (b) exceeded by cuts in social welfare rates? Or, heaven forfend, can you (c) contenance the softening of SW cuts with progressively larger cuts in public sector pay?

@John Sheehan

OK, fair enough. And do you think that the other side is reasonable (for example “vinny’s” post above or the views put forth every day in the Independent newspapers?

The Irish people have been led to believe:

1) That their public service is ‘the worst in the developed world’;
2) That their public service is the best paid in the developed world;
3) That Ireland pays wildly disproportionate percentages of GNI on its public service;
4) That Ireland has very high taxes and that it can’t possibly take any more taxation.

Every one of these beliefs is demonstrably false.

Want to have a reasonable debate? I’m all for it. But the starting point cannot be propaganda.

@ Ernie

first off, Vinny is a random poster, where as Blair Horan will no doubt have a rather front row seat for much of our social partnership and public service negotiations. We have a right to be rather more critical of Blair Horan as a result.

secondly, we again bring it all back to…”That Ireland has very high taxes and that it can’t possibly take any more taxation.” This isn’t about Ireland’s ability to withstand a significant hike in taxes, its about whether Ireland wants to withstand a significant hike in taxes.

As previously asked, will you, your public sector colleagues, and the Public Sector Trade Unions accept the democratic will of the people if they choose to vote in a government that pledges to keep taxes relatively low and to cut public sector pay & numbers significantly?

During the boom we had so much one-off excess cash that questions surrounding what and how much we should be spending in the public service could be ignored and put off for another day. Well that day has arrived, and ultimately it’s not up to the Trade Unions to decide how the taxpayers money should be spent.

@Eoin
“random poster”?
what’s that supposed to mean?
I invite anyone to refute any of the claims made in my original post!
And I will add to it – the utter incapability of the public sector to project manage within money and time budgets any reasonably sized public infrastructure project.
People who call themselves professional,skilled and ‘better qualified’within the public sector vv. the day-to-day businesses within the private sector really need to honestly review their performance levels in these key areas and reflect accordingly in relation to their justification for superior salary levels – particularly at senior levels!

I think the people in the public sector are not paid enough in some circumstances, the problem is the sheer numbers, 370,000 in a workforce of c. 2m is far above what I would consider a healthy level of state worker population. btw – does anybody know if the 370,000 includes semi-states?

part of the problem is the union movements influence on policy, they don’t have a national mandate (while the people they influence do) and they have done a great job in organising what is – in effect- a cartel type situation of labour pricing, well done and great to be part of if you are a beneficiary but not so great if you are not because when situations change the assumed costs are totally embedded and you can’t remove them as quickly as you created them.

there is constant talk of the need to have tighter control over banks, and NAMA is THE debate, but a few years of our current structural deficit (largely public sector labour cost driven) will be just as pricey, perhaps this topic will become the new front line?

@Karl Deeter

The 370,000 figure that is bandied about includes:

52,000 employees of semi-state companies of which 41,000 work for commercial semi-state companies
37,000 who work for local authorities

You may think 370,000 is ‘far above’ what is ‘healthy’ but that’s just a statement about your ideological assumptions. In fact, Ireland is and always has been on the low side in international comparisons of public sector employment as a percentage of the workforce.

the irish public sector has the mind set of the old ussr….wanting to be spoon fed from the cradle to the grave…in the private sector a strike can mean the loss of the clients whom pay their wages…this outlook does not exist in the PS…The laws of supply and demand as well as the profit motive are alien creatures to the PS…..The PS creates the type of fantasy world that caused the communist world to implode…The PS are willing to black mail the state to the point of burning down your house because you’re not happy with your niegbours…..reason and logic are alien to their
self motivated private interest…hence the debate on your logs just falls on deaf ears….