Fintan O’Toole on Public Sector Pay

Rots starts and ends at the top. We’ve recently witnessed the most obscene and grossly inflated retirement packages being given to senior civil servants, most of whom were intimately responsible for bankrupting the country.

Given the nature of the huge and undeserved remuneration at senior level, it is safe and indeed logical to assume that the entire public service from the top down is overpaid, overcompensated, and over-pensioned relative to well, anyone outside of the financial sector or king Creosus. Fintan O’Toole can postulate all he likes; €713,000 for wrecking the country constitutes an overpayment.

It’s impossible for the government to reduce the public sector pay package while they continue to overpay senior officials, and overpay for consultants and legal services. Impossible. Top level pay gets dealt with first, then you move down the line, otherwise the civil service will fall apart at the seams and the country along with it. Since I wouldn’t bet on the government doing anything at all about this, it looks like they’re just going to have to cut social welfare instead (or–the horror–raise taxes!)

I understand the point you’re making completely, and there is a logic to it. However, the reason it is a bad idea is given by the answer to your question:

WHY NOT LET IT CONTINUE?

Answer: Because we have to borrow ~€20 billion every year to pay for it.

Eventually, this money is either going to have to be a) paid back, or b) defaulted on. Paying it back is going to be, well, a lot more painful than giving it out. Defaulting on it will be difficult if we’re seen to have been living wilfully beyond our means.

The third option is of course to c) leave the euro and print punts like there’s no tomorrow to inflate away our debts. But since the whole point of the current policy is to pay civil servants inflated salaries in a currency that’s actually worth a damn, I don’t see this position being taken up without a lot of resistance.

OMF and others. For once, Fintan O’Toole was not on an ideological rant and didn’t go on about the dreaded “neo-liberal” word. Have you read what he wrote? Are you willing to consider evidence from a reputable source such as the OECD?

O’Toole quite correctly points out the exceptionally high rollers in the Irish public sector: the medical consultants and some very senior civil servants. To assert “that Given the nature of the huge and undeserved remuneration at senior level, it is safe and indeed logical to assume that the entire public service from the top down is overpaid, overcompensated, and over-pensioned relative to well, anyone outside of the financial sector or king Creosus” (OMF) is neither logical nor factually correct. In fact it’s nonsense on stilts.

There is scope for a sensible discussion on the size of the public sector pay premuim in Ireland and in other countries and also on the absolute levels of pay in Ireland compared with other countries. But the reactions to F O’T’s piece are not a good start.

And why concentrate just on public sector pay if retailers, restaurants and the like complain that their (private sector) wage costs are a lot higher than in the UK?

It certainly is difficult to justify the levels of remuneration in the public sector for the majority of staff, especially middle to high level non-specialist grades. I cant help get the feeling that the Croke Park Agreement was a massive win for the public sector and only reinforces the significant divide between public and private sector. The other difficulty in the Irish public sector is in the central government departments, the lack of specialist employment grades makes it difficult to benchmark the private market value of the employee and also to develop appropriate targets with which to estimate efficiency (for Croke park savings etc).

Bottom line: less pay, less generalists, more integrated and open labour market to allow better movement of employees between public and private sector.

@OMF/ Conor

The evidence is that the largest pay premiums are/were at the bottom, not at the top of the public sector pay distribution. Analyses of pay levels in either the public/private sector rarely have much to say about pay at the very, very top, just because of lack of data. But Kelly et al. (2009) found that, post-Benchmarking I, the bottom decile of public sector workers were earning 22% more than their private sector equivalents, while at the top, the premium was 8%, having increased from a negative (i.e. a penalty) three years earlier. The CSO published an analysis of the 2007 public/private gap that found the same pattern – the big gaps were at the bottom. Years earlier, Boyle et al. had found the same.

Of course, we know what’s happened to public sector pay since 07, but not to private sector pay, so it’s hard to say what’s happened to the gap. Which brings me to a quick point on Philip’s call for an up-to-date analysis: lack of data will be a real problem. Because of cutbacks, the CSO has discontinued the annual National Employment Survey as of 2009. So while the analysis could be updated to 2009, that may be the end of it. The only other survey with detailed earnings data as well as information on education etc. is the EU-SILC, and it doesn’t have a question on whether the worker is public or private sector so it can’t be used.

http://krugman.blogs.nytimes.com/2011/10/11/wise-words-on-europe/?smid=tw-NytimesKrugman&seid=auto
Someone needs to hand this to Michael Noonan to use when talking to Angela and Nick.

@ John Sheehan

The OECD report has data on a top of scale secondary school teacher in 2008 earning 61K US$ppp compared with $37k in wealthy Norway but Fintan appears to have found the averages more useful.

In 2006 when the Chirac government was trying to introduce labour reforms in France that it said would encourage employers to employ more young people, a national poll of young people showed that 65% wanted to become civil servants.

1) As globalisation has impacted the power of private setor workers, trade unions have increasingly become dependent on public sector staff but debt pressure, ageing and the liklihood of low growth in advanced economies in the next ten years is forcing governments to look at public service costs.

2) 56% of the Irish health budget relates to staff costs compared with a 21% averge in the Eurozone.

3) Payroll costs in Irish higher education accoount for 75% of the budget compared with 66% internationally.

4) Higher public service pay is part of a pyramid of differentials but only a determined government can face down the entreched Victorianism.

5) There are many groups in the private sector dependent on public welfare even though they may regard themselves as capitalists.

6) O’Toole objects to Sutherland’s public pension but says nothing about the pension system as if it’s not a significant benefit.

@ christy/Aedin Doris

The CSO used to publish data showing that clerical workers in ‘electricity, gas and utilities’ were the highest paid in the country — about 20% higher than in companies such as Intel.

ESB hourly paid workers earned double the average industrial wage.

Then add in perks such as free shares, free electricity, pensions and by comparison, just basic redundancy and no pension for many in the private sector, one would have to wonder why lefties have ended up in the same boat as the professional fee cartels in defending priviliged indsiders?

Last Dec, Fintan O’Toole stood on an ICTU platform addressing a public meeting and next to him was a man who had been a director of the Central Bank for 15 years — one of the system’s insiders.

In the clientist system there is an illusion of access to power; absent collective power, the individual in the private sector is alone and largely invisible.

As for perks, even State guranatee of employment in itself is a big bonus for anyone who seeks a relatively risk-free life.

@ Tim

“My question to the economists on this site, who constantly casually assert that public servants are always over-paid, why didn’t they themselves go into the cushy over-paid Department of Finance , which appears to have been crying out for economists all through the boom?”

You might want to check who it was that was doing the crying out. Hint: Not the DoF.

@ Karl Whelan

They went into the cushy over-paid universities instead!

Michael Hennigan likes to cite figures like these:

Payroll costs in Irish higher education account for 75% of the budget compared with 66% internationally.”

This may well be true. But, typically, Michael assumes that the only explanation for this must be that everyone working in higher education is overpaid. That doesn’t follow at all and there are lots of other possible explanations.

But nuance isn’t a strong suit of those who rail about PS pay. For example, few ask how the payroll information in higher education breaks down between, say, academic and non-academic salaries or between those doing the actual work and those that make up the bureaucracy that increasingly prevents the work from being done.

This spreadsheet gives the total third-level employment numbers broken down by third-level institution and divided into academic and non-academic employees. It doesn’t have information about the total cost of non-academic and academic employees respectively, unfortunately, which I believe would be even more revealing.

What it shows is that at UCD, UCC and TCD especially, the ratio of non-academic to academic staff is appallingly high and has been getting worse since the hiring embargo came in. It also shows a clear split between the over-administered Dublin universities (with the notable exception of DCU) and the less-administered universities and colleges elsewhere. I’d be interested to know what such ratios are like in other jurisdictions. An answer to this might help explain the high proportion spent on wages here.

Anecdotally, there has been an explosion in administrative bureaucracy in third level in the last decade. Not coincidentally, these are the people (Des Fitzgerald, take a bow) with off-the-charts remuneration packages. I’ve seen an organisation chart of Des Fitzgerald’s office and, believe me, it’s all chiefs and no indians. They have one person working there at administrative assistant level and that person is the administrative assistant to Des Fitzgerald’s personal assistant (!). Everyone else is a senior administrator of some kind. One irony is that this massive bureaucracy, like that of the HSE, was created in large part to satisfy the demand for “accountability” and for “strategic planning” like that in private sector businesses. A bulging bureaucracy to administer the “accountability” of the dwindling proportion of staff who actually accomplish the work of the university. And all because “you” demanded it.

So there is some nuance here that is lost in all the broad brush attacks on the entire public sector and I imagine it would be much the same story if one looked closely at the HSE: what sometimes seems like globally elevated wages can disguise great disparities. I’d wager that the proportion of the wage bill in third-level institutions that goes to administration is even greater than the 55% of staff numbers that they represent.

DCU, to its credit, seems to have discovered a way to carry out the business of a university with minimal administration. We should strive for our other universities to be more like them and start cutting among the umpteen vice-presidents commanding those giant “academic” salaries that we read about in the press. Those people aren’t academics (anymore) and universities would be perfectly able to continue going about their business if most of them were made redundant tomorrow.

@ernie

“Oh, and Michael Hennigan: you forgot to mention that that man who was on the board of the central bank (I assume you’re referring to David Begg) got roundly booed by virtually everyone at the march. And they weren’t booing him because they want to see workers’ share of the pie cut to the bone, as you seem to.”

I find this quite objectionable

Nobody suggested that they wanted to see “workers”, (whatever that means) share of the pie cut to the bone.

Wages ought to be set in the private sector – this is a market economy – and then applied in the public sector on an analogous basis – so much is agreed, (i.e. bench-marking)

Now the state is perfectly entitled to redistribute income through its taxation and spending policy – but there is no reason to specifically favour people who work in the public sector by giving them wages and conditions above those in the private sector.

Moreover, such an approach undermines the case for a large re distributive state by effectively hijacking revenue and siphoning it off to insiders in the public sector who use union power and the nature of teh jobs they do as leverage to extract rents from teh state paid for by everybody else.

We are NOT talking about about how progressive the tax system or gov.expenditure ought to be – we ARE talking about whether public sector ‘workers’ ought to be able to extract rents.

@ Christy

Leaving aside the man at the march, I agree completely with the points that you make. But I would go further. The question has to be asked: why should there be a distinction between private and public service employment? The more progressive countries (Scandinavian, of course!) have asked this question and come up with the obvious answer. Similar work should be similarly remunerated and workers should share the same basic conditions and superannuation entitlements.

Not alone is this question not asked, but the need to pose it is not even recognised in the general discourse in Ireland (and in other less progressive countries, it must be said, including our big neighbour from whom we inherited this blinkered view). This means that the concept of “permanent, pensionable employment” should not apply except in the most exceptional circumstances where public service in the purest sense is in question; admittedly somewhat difficult to define but too widely applied at present. Unless, of course, one wishes to apply it to the entire workforce. But we will not go there!

The interesting thing is that the state of the public finances is such that this fundamental question can no longer be avoided. The half-way house, for example, of reducing pay and conditions for new entrants but leaving the conditions of those currently in employment untouched is untenable in an EU legislative context which rules out discrimination of any kind. I wonder if those enjoying the current working conditions and who drew up the “reform” are even aware that the EU exists. And the argument about “contractual entitlements”, being liberally used to defend these last-minute raids on a rapidly diminishing public purse, never had, and does not now have, any validity in the context of the non-contractual nature of most public service employment. (Except of course where it was introduced to justify going outside existing civil service pay scales and conditions).

@christy

Do you have any evidence of (1), particularly the claims that workers (post 2 rounds of pay cuts) in the PS are “paid more,” that they “have better work conditions” and “enjoy substantially better pensions”?

With regard to this last claim, please bear in mind that the only entity funding those pensions is an Irish government that the markets, which you consider infallible, were quite certain until recently was going to default and had 10-year bond yields near 14% as a result. And it still may default.

My turn to say that I can’t see the relevance of what you’re saying.

I ask again: do you have any evidence for the claims you labelled (1)? Or is this just more of what “everybody knows” because they read it in the Sind every week for the last 3 years?

@TRP

The data on that spreadsheet came from then-Minister for Education Mary Coughlan’s office in response to a request from current Minister for Education Ruairi Quinn. I cannot explain the discrepancy you point out.

And throwaway comments cast down from the high moral ground about how people who disagree with you must believe in the infallibility of markets, without them ever saying that, or ever saying something from which that can be implied, are simply, again, not relevant.

Moreover, saying somebody suffers form an ideological bias is, in my view, more of a conclusion than an argument.

You consider somebody’s position, and if you see hidden or explicit assumptions or defective reasoning, and you then go further and come to the conclusion that the problem in their approach is caused by a particular world view or ideology then I’d say you’re justified in throwing labels.

But you can’t skip the first bit – you have to get down in the trenches and point out where their reasoning is wrong, before you say why they are wrong. Otherwise, the fact that they have an ideological position is not relevant because its not impacting their argument – and sometimes it’s used as a way of avoiding actually addressing the point being made

I say we get some private-sector consultants. They are universally acknowledged to be models of probity and efficiency.

@ernie & judge

Maybe we could get the DofF and Morgan Stanley to do it

With their powers combined…

@ DOCM

‘The half-way house, for example, of reducing pay and conditions for new entrants but leaving the conditions of those currently in employment untouched is untenable in an EU legislative context which rules out discrimination of any kind’….

I wouldn’t be so sure of that. The ESB is getting away with it so far, a lot of new entrants are employed on private sector styled contracts in ‘SubCo’s (i.e. Subsidary companies set up, in some cases with the sole objective of circumventing workers rights) their pay benchmarked with the private sector, defined benefit pensions and less options in terms of movement within the organization (i.e. stuck in the one subco). Nearly all are well educated graduates and can in some cases work interchangeably with those older (obviously), on double their pay, not as well educated, a defined benefit pension package many multiples of theirs and an ability to move anywhere within the entire organization.

These new members are younger, only represent about 1/7th of the staff in ESB and have a lower rate of union membership. Staff turnover is far higher than ‘the lifers’ (which is practically zero I understand) but wages are considered reasonable versus the private sector. All of which may explain why a case hasn’t been brought against the organization yet, perhaps it can’t go on forever but they’ve got away with it so far.

@Ernie Ball

“I say we get some private-sector consultants” – paid for by whom?? the state…?

if there is one thing these consultants know …thats what side their bread is buttered……happy little merry go round wouldn’t you say?

Im amazed there is any evidence at all to suggest a pay discrepancy between public and private sectors.

Ernie Ball bases his arguments effectively on the obfuscation generated by the taxpayer funded spin machine.

@ Christy

It is clear that quite a number of your opponents in this debate have the quaint belief that unions represent the interests of workers. Nothing could be further from the truth, not least in respect of the near half a million workers that are presently unemployed. Unions represent the interests of their members and, as these have a major influence on who gets elected, we have ended up under the baleful influence of the so-called, and now nominally defunct, social partnership aka the Croke Park Agreement.

The issue is simple. We have to borrow the money that maintains the current level of public service entitlements and we cannot do this indefinitely. As long as the current government maintains the fiction that we can, Fine Gael will continue to enjoy a honeymoon in the polls. Not so Labour! Workers, especially the unemployed, have more sense than to fall for it. This is already having a major impact on the political landscape.

@DOCM

I think, particularly in the past, unions have been a force for progressive change.

In terms of labour laws, social insurance and other stuff like that they have provided really important support.

They also did and do act as a power base for progressive and reforming causes – some of them have come out in support of the wall street protesters for instance, and have brought an increased level of legitimacy with them.

But in the past these organisations were often priavte sector unions.

The logic of Fintan O’Toole’s argument is that there should be no equivalence between public sector and private sector pay because the public sector deserve to earn above average OECD wages.
The Irish private sector should accept their status as second class citizens in facillitating and paying for this policy of apartness.

@Joseph Ryan

That is a bizarre distortion of the content of the article.

@ DOCM

I agree with most of what you’ve said. Not sure about your New Zealand comment though, I’m not convinced Emigration has returned in any significance yet (if that is what you’re implying). The ESB practice is quit young, as is the governments ‘shaft the new civil servant (in relative terms)’ policy. The staff affected are also generally in their 20/30s, the current unions aren’t going to fight for them to have the same conditions if it means their older better condition members, still the vast majority, will have worse.

So it might take a while for these workers to develop the confidence and organization to express/fight the obvious injustice. Though one important caveat is to say, this injustice is relative.

Of course ESB management would give all staff ‘SubCo’ conditions if they could.

So the questions are:

If the government are planning on using tax payers money to provide a Dutch style health insurance to everyone, presumably on the premise that equality is a worthy objective of government, why are equal style pensions not on the agenda for everyone?

You could also ask the question, what good does subsidized home-ownership do for society? Why isn’t there equally good subsidies for renters? Or no subsidies for both.

I’d like to see an Ireland, with equal pensions schemes, equal health, equal access to education and a German style no bubble property market.

According to Koo in this lecture – Koo looks at the conservative pre bubble year of 1985 GDP and compares the fiscal stimulus money produced compared to the potential GDP if it was not spent.
Starts at 19.00 minutes

http://www.youtube.com/watch?v=OWGDWYB5KZ0

So 460 trillion yen of goverment money produced 2000 Trillion Yen ………… – a 4 to 1 return.
While we know that leveraged credit in the Irish economy was dramatically negative to our GDP !!!!!!! and as for our GNP…………………………………….
We are now told that no money is available in Ireland for public infrastructure investments – but the potential returns in this depressed economy would be dramatic………..

Is the private sector a extractive activity in this monetory system ?
It is certainly a net negative activity in this monetory period.

Irish Public / Private sector pay comparisons:

Although based on data from the 2003 National Employment Survey, I believe the econometric study commissioned by Benchmarking II (which, you will recall, awarded very few pay increases) is still a valuable starting point for a discussion of the type needed here.
http://www.benchmarking.gov.ie/Documents/Econometric%20Study%20of%20Earnings%202007.pdf

It concluded that, on average, public sector employees earned about 10% more than their private sector counterparts when allowance is made for differences in job and employee characteristics such as occupation, age, education, hours worked etc.

@DOCM

There was no remedy when the vested interests last ran the country into the ground. On this occasion, our membership of the euro may provide it. The constraints of staying in the single currency, and we have no choice but to do so, are only slowly being recognised by the policy community. These constraints suggest that the era of foreign borrowing for current expenditure is definitively over and cannot return.

It fascinates me that your antipathy to spending money we do not have never managed to extend to the tens of billions spent on the bondholder bailout or the general propping up of Eurozone financial capitalism. Why is that I wonder?

Oh, and we have a choice about Eurozone membership, and indeed the bailouts, though the agents of financial capitalism would have us believe otherwise.

The great lie is that the Japan experience was that bad in the long run.
Unsophisticated savers in their post offices & bank accounts made great long term returns from a rising Yen eventhough they had very low interest rates.

The financial sector hates large goverment defecits because they cannot game the system effectivally as the base is too large to destabilize – transferring the surplus to unsophisticated savers.

There is the technical flaw in Fintan missing the movement in prices that went with the movement in pay, but there is also a wider flaw.

PPP metrics are really what PS representatives would use as a tactic but the rest of us should not. It is now no longer contentious to say that – absent Euro exit – Ireland has to reduce domestic prices and pay and reduce waste and bureaucracy to become more competitive in an international sense. Courtesy of his recent restatement of this, even blow-in followers of the K-Crusader now get this. Maybe there were other choices available, but they were not presented to the public for scrutiny and democratic approval, so that is the choice made.

If you allow yourself to get sucked into a belief that PPPs for PS workers and members of sheltered private sectors should be protected then the only way of arranging the required deflation is to arrange for domestic prices to fall first, then ask nicely if the PS would agree to have their now increased PPP reduced to where it recently was. What do you do, reduce Vat and borrow some more?

The other, more sensible way is to reduce PPP rates of pay and insist on savings flowing through to domestic charges. Somebody has (to be made to) take the first move. Nobody will volunteer. The private sector and some vulnerable welfare recipients have “been volunteered” already. It is the turn of the PS.

Unlike the Vat reduction route, this also dovetails with the fact that there is a budget deficit and the country cannot borrow in the market for sovereign borrowings.

PPP arguments were all the rage in the seventies. Every wage bargaining round was dominated by powerful groups protecting their PPP (and a bit) and perpetuating the inflationary culture. Meanwhile the less industrially powerful or less connected or sheltered gradually got left further and further behind.

Eventually the popular backlash was latched on to by politicians with a very cross electorate backing them up. History is there to learn from.

Phillip is right to point out that a very influential journalist has made an economically flawed argument. Doubly so because it is an intervention that will not necessarily reward him with widespread popularity. The country requires and deserves more of this from its economists. That is what they are for to wantever extent they don’t want to be entirely and literally academic.

It’s the “turn” of the PS, is it, grumpy? You must’ve missed the first two such “turns” which seem to have vanished down the memory hole. . .

A very dispiriting debate on the VB show tonight.
People debating increasing taxes – no one recognizing that decreased tax take is only a metric of the declining money supply.
When a victim of a car accident first comes into a hospital , the first thing you do is stabilize & stop the bleeding – then you can administer more advanced solutions.
Credit deposits must first become goverment paper – then we can talk about more refined medication
At the moment money is just being extracted with predictable results although we hear talk amongest some connected economists that this will end soon perhaps with our “pillar” banks buying Irish paper.
The famous Thomas Jefferson quote comes to mind :if people ever allow private banks to issue currency first by inflation then by deflation…………………………………
Its a terrible ravenous pack that we have amongest us.
As the core capital of the country gets more stretched with each passing inflation / deflation episode the Jackels must drink more blood to sustain themselves.

@DOM K
OIL.

For the record, yet again we should all state for the record that PS pay has been reduced from the very high peak it reached during the spending splurge, that it has had real effects on PS workers who became accustomed to those levels, but also that the reductions are very unlikely to be sufficient.

Probably it is necessary to include a footnote that the writer is aware of the fact that the budget deficit is not solely a result of high rates of PS pay.

We should probably always include these or equivalent phrases when commenting on this particular topic.

@ Grumpy,

“then the only way of arranging the required deflation is…”

That’s just the problem. We require inflation. Not deflation. The euro is a death trap. All these debates are a testament to that.

@ Dork of Cork

“We are now told that no money is available in Ireland for public infrastructure investments – but the potential returns in this depressed economy would be dramatic………..

Is the private sector a extractive activity in this monetory system ?
It is certainly a net negative activity in this monetory period.”

You’ve really hit the nail on the head with that comment.

We appear to have a culture where people’s cavalier attitude towards public funds is not an issue of public or private.

Today, the opportunity of public office and for many in the private sector who can milk the system, is viewed as an opportunity to grab what can be taken while the going is good.

Life maybe a little more complicated than in Jan 1953, an important month in the calendar, when Harry Truman, the former US president and a man of limited means, used his own car to drive himself and his wife home to Missouri, from the inauguration ceremony and his only income was a pension for service during World War 1.

Fast forward to today and it’s interesting that the new Irish ministers haven’t proposed changes to the system that gave bonanzas to failed ministers rather than banishment to St. Helena; neither have independent TDs nor university senators proposed the abolition of the tax-free gifts worth over €200,000 to a TD over a Dáil term, that had their genesis in the tawdry barter for votes after the 1997 general election.

Last week, the World Bank suggested in a report that low- and middle-income countries should resist the temptation to establish world-class universities to cash in on research earnings and court global prestige before educating their own citizens to high tertiary standards.

It’s advice that a bankrupt country should consider.

Further to Ernie Ball’s point on the bureaucracy at UCD, I would guess that empire-building rather than prudence is the focus of administrators.

Recall, Prof. Brendan Drumm was hired as CEO of the HSE as him plus a ‘kitchen cabinet’ complete with a PR man.

This is an interesting thread and I agree with most of what Ernie Ball says. It seems to me that there are three issues that need to be considered when assessing public sector pay.

First, recognition that the government is the largest employer in the Irish economy and the public sector is not a homogeneous workforce. It is a complex labour market with internal coordinating problems that government as employer must resolve.

Second, a recognition that public sector pay is funded through general taxation and therefore pay will always be treated differently to an employee in a private firm. Thus, public sector pay should follow rather than lead on nominal wage costs. This requires significant institutional and political coordination and cannot happen via market mechanisms of supply and demand.

Third, recognition that public sector pay in a European labour market requires cross national comparison. It is not sufficient to compare internal pay trends. These must be contextualized in a comparative analysis as it will make it easier to compare nuances.
___

In relation to the first problem, government tried to finally get to grips with coordinating public sector pay with bench-marking. The concept is as still relevant today as it was in 2002. The outcome was a massive political mistake and it is this that has led to the backlash against social partnership and trade unionism in general. Trade unions cashed the check without the reform. Public sector managers failed miserably. It added an additional €1.4bn to the public sector pay bill, the data was never released, benchmarks never disclosed and data protected from FOI. All in all it was a political error and de-legitimised the use of a national partnership framework to map out a medium term plan for Irish economic recovery. It changed the wage restraint bargain implicit in the national age agreements and created a situation whereby the public sector became wage leaders. IBEC never really challenged this as it the MNC sector are well able to internalise high labour costs. The total opposite of what was required in a fixed EMU regime.

In relation to the second problem; there needs to be greater integration internally within the public sector labour market and externally in the private sector. There is a grey area in between. The government is the best employer in the country. It provides the best pay, standards and conditions. The wage premium is high (according to all econometric studies). Rather than beat this as a negative it should be used as a benchmark for improvements in the private sector. The only comparable employers in the private sector are large MNC firms. The labour market is a complex institutional relation not a price that is determined by supply and demand. It is the assumption of the latter that make economists sound pretty silly when talking about labour markets (we don’t have any serious labour economists in Ireland). If we want to coordinate pay and ensure that the public sector does not become a wage leader we need a national centralised wage bargaining framework. Or, we need a sectoral coordination based on wage leadership from MNC’s that links up with collective bargaining norms in the public sector. This will not happen as MNC firms in Ireland, unlike everywhere else in Europe, are totally disinterested in involving themselves in public institutional frameworks to improve productivity or collective wage costs. Thus, the government as the largest employer will always be a central player in a national framework. This is a reality that cannot be wished away.

Third, a comparative analysis will show that the Irish education and healthcare sectors like most countries have a wage premium over their non-existent private sector counterparts. Fintan O’T uses national averages. I am not sure this is the right way to go. The tails matter. We have too many overpaid managers in health and education. But, the important difference is in taxation. To fund a well paid public sector that is productive requires a solid revenue stream. We do not have one. Thus, the problem is tax not spend. Other small open economies like Netherlands, Denmark, Finland, Sweden, Switzerland and Austria fund a coordinated public sector through revenue. There is a cultural ethos that links the private with the public. In most of these countries large MNC firms in manufacturing set the lead in national pay norms. They are open and explicit about this. In Ireland, it is only the government and semi-states who are open about pay coordination.

So, if the purpose of this dialogue is to improve national competiveness, generated wage policies appropriate to the EMU then we need to ask – what have the Googles, Intel, Microsoft etc got to say about this and why are they not in the public domain?

This debate has now been ongoing for three years, yet we are no closer to a resolution of the issue which most exercises the public/private split: the perception held by each side that they are most sinned against. It really is all about perception, facts are disputed, metrics are debunked and the median/average/ordinary man on the Clondalkin omnibus hasn’t a clue where truth lies.

Surely it is not beyond the wit of man to come up with a neutral/unbiased metric with which to resolve this debate?

Meanwhile, the deficit remains essentially the major issue, yet we are stuck in a cloud of Euroscepticism and debate, driven by the Greek situation, which only distracts from the deficit and what measures we need to take to address it.

Europe are not the only ones kicking cans, methinks?

@Aidan R

“Second, a recognition that public sector pay is funded through general taxation and therefore pay will always be treated differently to an employee in a private firm. Thus, public sector pay should follow rather than lead on nominal wage costs…

[…]

In relation to the second problem; there needs to be greater integration internally within the public sector labour market and externally in the private sector. There is a grey area in between. The government is the best employer in the country. It provides the best pay, standards and conditions. The wage premium is high (according to all econometric studies). Rather than beat this as a negative it should be used as a benchmark for improvements in the private sector. The only comparable employers in the private sector are large MNC firms. The labour market is a complex institutional relation not a price that is determined by supply and demand. It is the assumption of the latter that make economists sound pretty silly when talking about labour markets (we don’t have any serious labour economists in Ireland). If we want to coordinate pay and ensure that the public sector does not become a wage leader we need a national centralised wage bargaining framework…”

This sounds very confused to me.

On the one hand you accept that the state should follow the private sector on pay

Then you say that state pay and conditions, which you accept are higher, should be used as a benchmark and seen as a positive.

Am I missing something here?

@Michael

I agree with you entirely. The Politicians are up to their necks in it as they are also beneficiaries.

As regards the Universities who we expect to be beyond reproach but turn out to be also looking after their vested personal interests and empires financed by taxpayers.

The Dork of Cork Says:
@DOM K
OIL.

Oh, I see. So the Japanese saver can buy a lot more oil for his Yen. It’s ok then.

@DOM K.
Jesse’s Café Américain
“Life is a school of Probability.” Walter Bagehot

14 February 2011
From Japan: An Interesting Comment On US Economic Planning, the Dollar, and Peak Cheap Oil

A Japanese perspective on the US budget:

“Unfortunately, the risk of the whole ponzi scheme crashing sooner rather than later is going way up, rapidly.

They want the dollar to go down by 40%, but I think they are going to lose control, and they might wind up with a 90% panic drop in a few months.

As I said, Japan, around 1995, went into a full peak cheap oil panic. A lot of the government borrowing went to what is characterized as “building bridges to nowhere”, but I would characterize it as building some bridges to nowhere, building some airports in nowhere, and fixing the entire rail and road infrastructure of the country.

All the bridges and tunnels have been steel plated reinforced, all the bridges are in perfect repair, and the Shinkansen system will next month be extended all the way from Aomori to Kagoshima.

In other words, I think they knew this 15 years ago and did everything that requires a lot of energy, such as steel, asphalt, cement, and completely the public transit infrastructure. The per capital floor space in Tokyo was doubled.

So, if we really do have a decade of serious energy problems coming, Japan has become about as energy efficient as it can be, with further improvements coming as appliances are replaced, etc.

The US has done nearly nothing, although I did note that the gasoline use declined by 7% in one year. There really is a lot of squandering going on. Now, however, the US needs to completely reconstruct its infrastructure, and it doesn’t have the money or energy to do it.

This is why I have thought for more than a decade that the trigger for a really nasty collapse of the dollar would be peak cheap oil.

Do they realize that if the dollar drops by half that oil becomes $200 a barrel? Gasoline would be over $5, and the country would be paralyzed. If the dollar drops more than that, the existing infrastructure would become nearly useless and worthless.

I am afraid that the US has already passed the point of no return. Had the cheap oil continued, the ponzi could have continued for a good while longer.

I think the realization that the cheap oil is gone is the primary motivation for the smash-and-grab behavior we are seeing in the US.”

Dork,

But what about the poor fisherman with his Y10000 or god forbid a NIKKEI portfolio?? He got royally crewed it seems. I don’t think he cares as much about oil as you do. In fact I think nobody does…..

@ Ernie Ball
Your description of the irresponsible and greedy profligacy you have experienced has and still is being replicated in many public sector and semi-state bodies.
For balance, I will also add that the sheer unadulterated greed of senior executive grades in certain private sector areas is unbelievable!
And both cohorts of senior execs – private and public – fail, in most cases to match rewards with performance!

This public sector private sector thing is just boring now.
The banks screwed up the country.
The politicians screwed up the country.
The people who didn’t screw up the country were the teachers, garai, nurses, small and medium business owners, and the children but these are the ones who will pay.

Public sector vs private sector was invented by the rich to distract while they stole money from both. Divide and conquer 21st century style.

Actually, the teachers screwed up the country too.

Nah it was just credit really – without it we could have made rational judgements about resource allocation as the economic data would have made sense.
Denninger takes the boy Krugman to the woodshed…………….

market-ticker.org/akcs-www?post=195774

I honestly don’t see why people listen to Krugman – he is a obvious shill for the banks.

@Corky Dorky

Obvious?

“October 12, 2011, 5:34 pm
Hard Times On Wall Street
A wonderful juxtaposition:

Max Abelson reports on the sorrows of the financial elite:

An era of decline and disappointment for bankers may not end for years, according to interviews with more than two dozen executives and investors. Blaming government interference and persecution, they say there isn’t enough global stability, leverage or risk appetite to triumph in the current slump.

…

Options Group’s Karp said he met last month over tea at the Gramercy Park Hotel in New York with a trader who made $500,000 last year at one of the six largest U.S. banks.

The trader, a 27-year-old Ivy League graduate, complained that he has worked harder this year and will be paid less. The headhunter told him to stay put and collect his bonus.

“This is very demoralizing to people,” Karp said. “Especially young guys who have gone to college and wanted to come onto the Street, having dreams of becoming millionaires.”

Meanwhile, Catherine Rampell reports on Bankers’ Salaries vs. Everyone Else’s, telling us that

the average salary in the industry in 2010 was $361,330 — five and a half times the average salary in the rest of the private sector in the city ($66,120). By contrast, 30 years ago such salaries were only twice as high as in the rest of the private sector.

It would all be hilariously funny if these people weren’t destroying the world.”

http://krugman.blogs.nytimes.com/2011/10/12/hard-times-on-wall-street/
.

@ Christy

Yes, I can see the confusion. What I meant is that public sector pay should follow the private sector in nominal terms i.e. in a negotiation it is private sector employers who should set the trend not the public sector. This trend setting does not exist in Ireland because our MNC’s have been free riding on national partnership for 23 years. Multi-employer bargaining where large manufacturing firms set collective bargaining sectoral and national trends is the norm across Europe. It is the dominat mechanism of wage coordination (i.e. not the market). My second point is that the pay and conditions in the public sector should not be seen as something to get rid off but an example for employees in the private sector to demand from their employers. Across Europe better working conditons and a wage premium exist in unionised companies or in those companies (usually US) with advanced HRM. The impact of what appear to be tehnocratic labour market solutions (get rid of wage setting, flexibilise contract etc) in Ireland will, in real qualitative terms, lead to a deterrioration of standards in working life. As Shonfield, Polanyi, Galbraith and so many others have argued – market capitalism needs an organised and reprsentative labour system to protect itself from self destruction.

Grumpy,

You are confusing bankers and banks. Krugman is railing against well paid bank executives but broadly he supports the system which has got us here.

Dork,

What exactly is the difference between the government created credit and bank credit? Because you seem to like one and dislike the other.

Dork,

I think the one thing we have learned from this crisis that there is no difference between the state leverage and banks’ leverage. In fact any credit is only a promise of future returns and it doesn’t make a blind bit of difference who makes this promise.

PS – Irish bonds in the eurosystem are now considered a liability in lets say RBS or even BoI.

Goverment Bonds were not really debt in the old sovergin money system – they are just money with a time function – they could be devalued but they were not strictly debt – they were more like a token & a base to fractional banking.

The rates increased in the periphery because the ECB refused to print enough of its fully private monopoly currency – creating a debt crisis.

Notice how the rates in the US & Britian are still extremely low……… they are printing more bonds ( money with a time component)

The eurosystem is merely creating a internal crisis so that the worlds reserve (dollar) shifts toward Gold.

Goverment money in a closed system is just a token with or without a interest rate attached. – if we all had our money in the post office and did not import anything – where would it go ?

It does not increase or decrease in the above system if we had a static supply (no printing) – unlike private debt which can be extinguished on payment of debt.
The one weakness of MMT theory and its a big one is the settlement of final foregin transactions.
Hence the big problem of the dollar reserve

@ Christy

What I am describing (and prescribing for Ireland) is the mechanism of multi-employer wage bargaining that covers 88 percent of employees in the Eurozone. It has proven to be a much more effective (in terms of economic and employment performance) and democratic (employee participation) mechanism to coordinate wages than the market. Ireland is unique in comparative EU terms because collective bargaining is concentrated in the public and semi state sectors. In almost every European country there are formal-legal mechanisms to extent collective labour agreements to the entire economy. Ireland, Slovakia and Estonia are the only countries in the Eurozone where collective bargaining coverage is less than 45 percent. It is almost 100 percent in Netherlands, Finland, Austria and Slovenia to name but a few. This is an empirical reality. The assumption of the perfect labour market is ideology.

Thus, there are two choices to improve wage coordination in Ireland. Remove the democratic right of employees to form trade unions and through state legislation or coercion push for a totally liberalized labour market both internally within the public sector and across the unionized economy (i.e. Thatcher and Pinochet) or accept the democratic right to collective bargaining and adopt an integrated and coordinated wage setting mechanism that is led by export sectors (i.e. European political economies).

@Sam It is rather unusual in any profession for recently qualified people to get the same amount as those with experience. A person may be talented, but can still learn from experience. A recently qualified accountant or doctor wouldn’t get the same rate as an experienced person, why should teaching be different? According to the OECD the average top of the scale is 62% more than the bottom for secondary teachers, in Ireland it is 68% more, hardly reflecting a huge difference. The shortest scales are in Nordic countries, which explains why Michael Hennigan chose to highlight Norway when complaining about Fintan O’Toole using selective statistics!

Likewise the OECD compare teachers salaries to average graduate salaries. On this ration Ireland is more than some countries, but had a similar ratio to places like Belgium, Scotland or Australia and lower than Germany or Denmark.

The story is not a simple one. But most of the commentary is simplistic and with little interest in the detail or the actual situation. There is very little interest in the conduct of education in Norway or Finland other than the raw figure for teacher pay.