ESR Paper on Public Sector Pay

The new edition of the Economic and Social Review is now available online. The edition contains two policy papers. One is this paper by Eilish Kelly, Seamus McGuinness and Philip O’Connell on public sector pay rates. I think Richard Tol is going to open a thread on the other paper which focuses on the carbon tax.

The three regular papers in the edition (David Audretsh on entrepreneurship, Ken Benoit and Michael Marsh on political science in Ireland, and Vahagn Galstyan and Philip Lane on fiscal policy and competitiveness) are also, in my opinion, very interesting contributions.

57 replies on “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.

What about hiring freezes?

I like them for their brute simplicity: You have a unit with x staff getting paid w*x and producing y output.

My (totally-untested-unresearched-and-off-the-cuff) assertion is that |(d(y)/d(x))*(x/y)| < |d(y)/d(w)*(w/y)| because output is ‘sticky’ in staff numbers and there is less of a demotivational effect.

You can even combine the two effects by offering (smaller) bonuses to units that achieve targets with reduced staff levels.

The workers feel motivated, the taxpayer saves some dough and the client gets (nearly) the same level of service.

Everyone’s a winner!

“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?

@ Graham

How does this narrow the pay gap though? It assumes we can generate significant (massive?) productivity gains in a manner which has very seldom occurred in the public sector.

@ Simpleton

we have essentially painted ourselves into a corner. I don’t see any realistically easy way out. Whether we like it or not, or agree with it or not, as you said, public sector workers (and their unions) have basically assumed the following three things as unmoveable truths:
1. nominal wages never decrease
2. public sector job cuts are minimal at most (and backed by large redundancy packages, which defeats the purpose)
3. public sector employment terms & conditions can only be altered significantly in return for a monetary award.

I can only see (sadly) the necessary adjustment taking place over the long term (ie pay and hiring freeze met with natural wastage and inflation), which will limit the governments ability to tackle the fiscal deficit head on and so limit their ability to run any sort of stimulus policy in the next few years.

@ 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.



When we think about it in terms of what can happen, as opposed to what should happen, we quickly realise that the scale of necessary cutbacks simply isn’t possible. But what is unsustainable is usually unsustainable. So where are the pressure points? CDS spread and all things bond related is where we start but where is the end game?

Is this why there was an almost visceral response to the suggestion recently that without NAMA, the arrival of the ECB is inevitable? Has the political impossibility of budget consolidation led to the growing realisation that crisis and ultimate ceding of fiscal sovereignty is not only likely but desirable?

@ 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.

The more I think about it, the more I feel it’s misguided to focus on pay without taking public service reform into account. It’s always about pay though.

It’s evident from the ESR paper that a massive error was made in benchmarking higher public servants pay against private sector rates in the first place. Surely it would have been much better to look at equivalent rates in countries of comparable size within the EU/eurozone and then make allowances for cost of living, quality of life, long term benefits such as pensions etc. rather than comparing with management and CEOs in private sector employment?

The way in which we recruit and train civil servants – as the CEO of Glen Dimplex pointed out on Morning Ireland this am – is essential to reforming the way the whole system works.

Talking to young people who’ve joined the civil service in recent years, their main frustration is with its ‘anthill’ management structure. They’re crying out for reform, but their voices can’t be heard as their so-called union leaders appear locked into the current structures and preserving them at all costs.

Unfortunately, the higher up you go within the system, the less impetus there is for meaningful change. So when there ain’t enough money anymore, instead of cutting unnecessary or duplicating programmes, or radically changing management systems, or adopting new approaches to the delivery of services and increasing productivity, the first instinct of the so-called mandarins is to freeze recruitment, so that things remain the way they always were and will stay that way until the money starts rolling in again.

The politicians don’t want to do anything about this either – and that applies to all the mainstream parties – because the system, as is, suits them best of all. Besides, they’ve made no effort whatsoever to radically reform their own rotten parliamentary and expenses gravy train system and have instead distinguished themselves by resisting change, beyond the odd ‘fig-leaf’ gesture here and there of giving up pensions or the like they should never have been receiving in the first place. Can’t expect that lot to rock the boat now, can we?


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.

Again, no specifics about what aspect of ‘public sector’ is being discussed; Is it possible to measure the wage differential of those within sectors, i.e

a) the variety of health services, from doctors to nurses to overpaid HSE bureaucrats.

b)the variety of education services, from language support to secondary school teachers, to VEC’s to overpaid university bureaucrats.

c) the variety of civil servants, from glorified photocopiers to overpaid politicians?

d) the variety of positions within the defence services, from rural police men to administartive bureaucrats in the Phoenix Park?

Similarly, what about the ‘private sector’

a) the variety of manufacturers, from front line product pickers, to tesco managers to overpaid senior executives in the MNC sector?

b) the variety of those in the ‘service’ sector, from the person who served you coffee this morning to the glorified data entrant in the IFSC, to financial accountants who help the overpaid CEO pay less tax

c) the variety of those working in the construction sector (or where working), electricians, plumbers, brick layers, carpenters to overpaid big builders

d) the variety of those who work in the community, voluntary and care sectors to overpaid private owners of nursing homes.

e) the variety of those in agriculture, small businesses, banking, legal music, film, gardening, hair dressing, beauty therapy, water etc etc etc

Bottom line is that there are some public servants (politicians, university professors, HSE manager) who are paid too much, and their are some in the private sector (bankers, big builders and many in the top echelon of MNC’s)

This is a welcome paper by the ESRI but the problem is with the econometric method. It ignores the qualitative difference between and within public-private workers. Economics works and deals with the abstract numerical economy not the qualitative-real economy. Furthermore, it pays not attention to income or wealth distribution across society.

@ 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.

@ Stringer Bell

the problem is that the private sector, eventually, auto-corrects any of its excess pay and conditions, while the public service generally does not (or at least it takes a lot lot longer). Moreover, excesses and inefficiencies in the private sector end up punishing management, shareholders (and sometimes customers), all of whom are generally voluntary participants in these relationships. Taxpayers are offered no such similar opt in or out scenario’s from the State.

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.


@ 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.

@ Stringer

I understand where you’re coming from re NAMA and pay cuts being a near impossible political cocktail. However, on a broad general consensus, NAMA is likely to either add up to a loss of €10bn at one extreme, to break-even/small profit at the other end, and all over a 10yr period. If we’re suggesting a 20%+ public sector cut, its currently wage bill of near €18bn is costing us €3-4bn per year in excessive wages.

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.


The private sector auto-corrects excessive pay levels?On which planet is this now?

Because on this one, the private sector–absent countervailing pressure from trade unions–squeezes the low paid in good times and bad while preserving and increasing executive pay as surely as night follows day.

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.”

When you consider the significant economic mess that we are in it is extraordinary that there is neither the political will or the administrative authority to change direction of public sector pay. It would seem to me that the the status quo prior to 1990 was that the professional and self employed paid no tax in exchange for the permanent and pensionable non jobs in the public sector. This changed with the tax amnesties and by and large most in the private sector are in the tax net save the super rich. Unfortunately because the Public Sector is still self regulated there has been neither any cultural change in their perspective or attitude. They are still working in non-jobs with very low levels of performance but ( inexplicably) expect rates of pay that are to be found no where else in the developed world. This disconnect became govt policy under Bertie Ahern. The OECD commented on the performance of the Irish Public Service was that it was the worst in the developed world. Didn’t seem to get much traction in the media.

A simple solution to our current fiscal position would be to cut Public Sector pay by 30% over the next three years. That would bring it in line (& actually below) rates of pay in the private sector, which is where it should be.

Until it is more economically rewarding to be working in the private sector there will be a systemic imbalance in the economy.

Mad Dog


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.


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’.


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!

@ Ernie

“The private sector auto-corrects excessive pay levels?On which planet is this now? ”

as an example.

I work in the financial services sector (non Irish, so non NAMA-ised!)

In our section this time last year we had 16 people. We now have 13. So thats a 19% cut in 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 in our company.

Despite growing income locally by 15-20% YoY, we’ve taken a 15% cut in gross pay after bonus, due to generally weak figures at a group level. We’ve also cut non wage costs by around 25%. Little bit of grumbling, but everyone understood the situation after (a) previous years wage increases and (b) huge drops in overall company profits and shareprice. No talk of strikes or industrial action. We also understand that at any point any of us could potentially lose our job.

Despite this increase in workload and decrease in pay, in a difficult and uncertain job situation, i would say that everyone in the situation fully understands the economic conditions the world and our company now operates in. We all arrive happy and motivated to work every day, faced with difficult, challenging and interesting targets to meet. I’m sure many in the private sector have been faced with similar dynamics over the past year, and have reacted similarly impressively in the face of it.

So Ernie, this is the planet that i live on. Please feel free to invite the public sector workers to join it at any stage.


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.

It is a tragedy for Ireland that no-one in the Public sector has the moral guts to stand up and admit that their is waste in the system.

How many people employed in the public sector ( depends who you listen to). Ingred Miley on RTE reckons about 372000. How many teachers, Doctors/Nurses, Gardai in the public Service, about 130,000. What do the other 240,000 do ?

On the OECD report, it was commented on radio (RTE ?) that the initial comments by the OECD before they went into discussions with their Irish Officials was that Ireland had the worst Public Sector in the developed world. Unfortunately, that is the great omerta of Irish public life.


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%.

Nurses earn more in the private sector? Doctors also? Teachers? Maybe. Inspectors of Taxes generally get much more but they are selected both for talent and to get rid of the nuisance value of a tenacious adversery that can cost a bank millions in VAT. I refer to a case of my successor in IB, who had told our superiors, in rank anyway, that if he was transferred from DAD 5, to IB he would leave! He was only a thirty year veteran ….. and a VAT expert. And there are numerous other examples. At the DIRT tribunal hearings even the idiots in on the whitewash had noticed the plethora of ex-Inspectors.
But I digress!
How are we to verify the salaries of private sector employees when many employers lie about the salaries paid? Taxi driver earnings soar when they look for a mortgage. And then subside when paying tax. Cash is king. Just what do you think that means? Ignoring the theft of PAYE, PRSI and VAT by employers should stop? Arragh, no!

However, there is actually a history of public service pay declining!!!
I know from somewhere, that pay went down in the last depression. No more than 10% I think, but with deflation, public service pay can indeed decline and they will still be “overpaid”. Reducing the pay of the low earning will affect the real economy, the one that excludes FIRE jobs etc. Soon, we will have very few bank jobs too!
Modern, Smart, innovative Ireland: a dynamic economy, reducing jobs, thousands at a time!

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!


Perfectly correct, but bad government becomes an open conspiracy and will resist all attempts at change!!!!

Most functions of government are unnecessary. More so now we are about to become part of a federal Europe!

Social welfare. Why so many petty rules that require petty buros? Abolish and instigate a positive income tax as recommended elsewhere. Everyone gets money!!! No tax credit as the money IS your credit! Work? Sure! Don’t tell us, we don’t care. If you are employed we will police them. Anything else you can keep. Entrepreneurial spirit will flourish! Small companies will disappear. Large companies will have to be more competitive as their small opposition are leaner and have one less overhead! Lots of public service vacancies! Sorry, redundancies. Much loss of graft replaced by hard graft!
Everyones a winner!

Agriculture. Abolish. If farmers can’t be bothered to learn how to farm, their competitors will do well.

Gardai, Customs and Defence. Amalgamate!

Sack two of the three Revenue Commissioners. There can be only one! The DIRT enquiry, (twist the knife!) said that staff need to answer to the minister now. Therefore there is no need for the supposedly independent Rev Commrs!

@ 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.

There has been conspicuous malinvestment in both public and private sector!
75% of FIRE jobs should go, the sooner the better!

Sure, cut away! Mismanagement is rife in Ireland. Poor management education in the public service means colossal waste. Graft means even more. But do not try to find it.

Cut those who do the work instead!

Cos guess who will be doing the cutting? Hint: not Colm McCutty! Then there is public outcry ….. Cut the “top” first. Junior management are about the only ones competent if under 40.

@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.

@ Ernie

i’m sorry, but why does the “the public sector is non-cyclical” argument only get trotted out in a downturn? Where the hell was this argument when the economy, your wages and your pension were growing by 5% per year between 1997-2007? Why did the public sector have to keep up with the private sector then, but they do not have to suffer the same consequences of ‘adaptability’ now?


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

at least we agree on the real issue at hand.

“the obvious way to right them is to increase taxes to something approaching those of our European partners.”

Taxes weren’t cut by accident. They were the cornerstone of almost all political parties manifestoes at every election over the last 10-15 years. The public voted for these policies, and by fairly large margins. Sinn Fein even started getting on the bandwagon the last time out.

As such, it could be argued that there is already a huge democratic mandate for the current government to maintain these low tax policies and to close the fiscal deficit via expenditure cuts. However, situations change and the current government may not have that mandate anymore. As such, were an election to be held and a low-tax-low-expenditure government to formed in its aftermath, would you then accept the democratic will to reduce public sector expenditure???


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.

@Proposition Joe

Look, I deplore any of that sort of horsetrading for modernisation that goes on. But you all seem to think that that’s the rule rather than the exception. Do you have any evidence that it’s not?

As for me ‘contradicting myself’: nonsense. I was refuting Eoin’s contention that somehow the public sector expenditure kept pace with growth in the economy. It did not. His and your argument seems to be that because it kept pace then it should keep pace now. I’ve shown that it did not keep pace then even though, as the OECD points out, Ireland had a lot of catching up to do. But the way your arguments seem to work is that public expenditure as a percentage of GDP (or GNI) should decrease during the boom years and also decrease during the lean years. Which is to say: it should always decrease, no matter what the circumstances and no matter how woefully under-resourced those public services are. That’s nothing but an expression of pure ideology, one that, I daresay, has served us exceedingly poorly these last years.

Finally, the pensions levy most certainly is a pay cut no matter how many times you insist that it is not. If it were not a pay cut, then those in the PS who do not have pensions would be exempt. They are not exempt. Therefore it’s a pay cut. QED

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 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.


Public spending may not have matched GNI growth exactly, but your own figures show it tracking within 75% during 1995-2005 (and I’d venture that growth in public spending far out-stripped that of the economy in the period 2004-2008).

Now if it tracked the downturn in a similar proportion, we’d be looking at a decline in public spending of over 9% (assuming a peak-to-trough decline in GNI of 12%).

@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

can we reduce down the pension liabilities (including lump sum payments) of the public sector by the same measure as well? Including those already retired? Lets put it another way – would you swap the 7.5% pension levy for a 7.5% cut in gross pay? If not, why not? The answer is fairly obvious.


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?

Our public sector -including politicos and their flunkeys who are paid out of the public purse are –
-wildly overmannned,at the top – wildly overpaid/over-pensioned
-job-for-life guarantee encourages poor performance
-over-protected by stone-age thinking and acting trade-unions
-have a bias for doing nothing – ‘micawberish’ – ‘not-on-my-watch’
-love reports,’high-level’ groups who talk,report and then do nothing
-love sick-days/
-resist all efforts to modernise/change unless more money/benefits on-the-table
-hate making decisions that can be traced back to them
-regard citizens as nuisances – we must ‘protect the state’!
-have no idea or care about the plight of private sector workers who lose their jobs
-are expert at waiting for the fuss to die down on an issue and then do nothing
-etc etc
and these people – particularly at senior ‘decision-making’ level -want to be paid more than their counterparts in any other modern democracy?
Cut numbers in non-frontline roles by 50% – cut salaries at senior-levels by 50% – end defined benefit pensions immediately and cut current pension benefits by 25% and make all govt. programmes/voted expenditures reapply on a minimum two-year cyclical basis.

This discussion seems to have degenerated into a rant. If we must have a rant let’s direct it at some of the people who can’t accept the findings of competent economic research. Blair Horan of the CPSU (one of the moderates, God help us) was on RTE Drivetime yesterday reacting to the ESRI Public-Private pay gap paper by O’Connell et al. He denounced it as “pure economic theory, based on the rational individual…. and neoclassical economics…which is the cause of the recent economic collapse…” [I quote from memory].

Mr Horan appears to be to Economics what Creationism is to the natural sciences. At least he omitted “neo-liberalism” from his generous effusion of terminology. Very difficult to have a reasonable discussion in these circummstances.

@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

No point having a debate then, since any of the grounds for the debate are deemd to be false at the outset. Moreover, it is an act of faith by the public sector that any data that casts doubt on their case is flawed while the data that supports their case appears to be a state secret.

The issue boils down to what the hard pressed above median but below super rich taxpayer with a foot in the private sector is willing to pay for his public sector counterpart. I would say that on the basis of the opionion polls that it is not a lot more.

Then the question defaults to what additional credit the bond market is willing to extend and again the answer is not a lot more.

The reality is that there is no appetite to increase taxes on the traded sector of the economy to further enrichen the lifestyles of the privalaged minority in the public sector. Moreover, there is no more credit. Case closed.

@ 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.

@ernie ball

My criticism of Blair Horan in no way implies that Vinny is correct! My general point is the hostility/ignorance regarding Economics coming from prominent trades unionists. Their democratic credentials are a political matter I’d rather not go into on this site: it’s their lack of economic nous which disturbs me.

“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!

@ Vinny

sorry, no offence intended. My point was that you can’t compare what is posted on a blog site like this with what senior trade union members are saying on live radio and to newspapers. I agree with most of what you posted, but even if Ernie didn’t, its a hollow comparisson to make.

All that’s taking place on this site is a debate. Blair Horan will i assume be taking actual negotiation positions on behalf of his trade union members, and we the taxpayer will be left with whatever bill there is left to pay. His current mantra is “no way” in terms of pay cuts, and then he backs this up with rants like the one John heard on the radio earlier. It rather scary that someone like this still doesn’t ‘get’ what going on in this country. His answer (towards the end of the Newstalk link below) is natural wastage, no wage cuts, big tax hikes, and an extremely long adjustment process. Basically we’re gonna have to be taxed more, borrow more and spend the next 10 years paying for our wonderful public service. Super. This is the standard, MODERATE, trade union party line.

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?

The problem here, which is allude to above is that we end up with a circular arguement, those on the inside defend the status quo, whilst those the outside query or criticise it.

The real problem is that we are operating in a vacumn of information. Only those on the inside know or have a better idea of how things work paygrades etc. For the general public we are left with scraps that slip through for example TD salaries & expenses.( They are after all only 250 people out of 370,000)

This is a core issue for the future of the irish economy. It needs to be addressed and the starting point has to be a removal of official secrets act regarding basic information on what goes on in the public service. This was a major problem with benchmarking 1.

We all need good public services. The question is how can that be achieved particularly when the finances that were available arenow seriously deficient.

Key to this has to be innovation, change, increases in productivity for less pay.

BTW with regard to the OECD reference this was actually broadcast on the radio, so if you want to check with either RTE radio 1 or Newstalk they might have a clip of it.

@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….

Comments are closed.