NESC has released a new report on how to address the current crisis situation: you can download it here.
Category: Economic Performance
Dave Thomas (general secretary of the Association of Higher Civil and Public Servants) argues that pay cuts for civil servants are ‘not the answer’ : the article is here.
Without having the time today to fully discuss this contribution, I will note the following sentence:
“First and foremost, public servants did not cause the economic crisis.”
This type of argument has been used by many interest groups to argue against expenditure cuts of various forms. However, it is also the case that ‘group X did not inflate the property bubble’ and the problem is that the windfall tax revenues during the bubble period allowed a rapid increase in public sector pay and many expenditure lines. The goal now is to restructure the economy and the public finances in order to undo the the adverse impact of the whole bubble-crisis episode and the relevant benchmark is not the level of earnings or public expenditure at the peak of the bubble but the appropriate levels of earnings and spending in order to ensure that Ireland can grow along a sustainable, non-bubble path.
This new paper responds to the recent CSO study and also tackles several new dimensions of this question.
Paper here.
Abstract:
This paper provides a sub-sectoral analysis of changes in the public-private sector pay gap in Ireland between 2003 and 2006. We find that between March 2003 and October 2006 the public sector pay premium increased from 14 to 26 per cent and that there was substantial variation between subsectors of the public service. Within the public service the premium in 2006 was highest in Education and Security Services and lowest in the Civil Service and Local Authorities. In the private sector the pay penalty in 2006, relative to the public sector, was most severe in Hotels & Restaurants and in Wholesale & Retail and least severe in Financial Intermediation and Construction. The paper tests for the sensitivity of the pay gap estimates using a matching framework, which provides a stronger emphasis on job content, and finds the results to be broadly comparable to OLS. Finally, the study highlights the problems associated with controlling for organisational size in any study of the public-private pay gap in Ireland.
As far as I know, there has not been a single blog relating to Northern Ireland since The Irish Economy blog began earlier this year. Northern Ireland is having a relatively good recession for various reasons on which I do not wish to dwell. However, it has serious long-term problems which have been addressed in a report commissioned by the devolved economy Minister. The report is available here. What will interest readers of this Blog was that 4 out of the 5 report authors are economists, of which I am one.
In essence, the Northern Ireland economy has operated under wartime conditions for nearly four decades. Public sector output amounts to around 60% of gross value added (the regional equivalent of GDP). More specifically, industrial policy has consisted of providing large scale grants to both inward investors and indigenous firms. This has been partly successful: employment growth has been high in the last decade and at the peak of the recent boom, the unemployment rate was hovering just above 4% as in the Republic of Ireland case. What was different was that productivity growth was low to non-existent. Consequently living standards have not converged on the UK and have diverged markedly from the Republic of Ireland and other successful countries.
Michael Burke has an analysis of the nature of Ireland’s economic crisis in the Socialist Economic Bulletin which is a blog published by Ken Livingstone. His account of how we got into our economic crisis is by and large a coherent one (an unfortunate typo suggesting that NAMA proposes to pay €54bn for assets worth €77bn notwithstanding) although one can quibble with some of his judgements. For example, his claim that the April 2009 budget was regressive is not supported by the results reported by Tim Callan using the ESRI tax-benefit model on this blog. One point he highlights to which I had seen little reference before is the implication of the collapse in domestic asset values for our net external debt position, given that much of this borrowing was financed by foreign bondholders.
In contrast to the detailed analysis of past history, his proposals for responding to the crisis are little more than sketched out and are thus less convincing. Competitiveness is not seen as a problem despite his clear analysis that a big contribution to our current trade surplus is the collapse in imports of investment goods and that our relatively good export performance is heavily influenced by the special circumstances of the dominant chemicals sector. One proposal is to delay fiscal adjustment because of its deflationary consequences (a demand already being made by the trade union movement). Another is to “take control” of leading property and construction companies presumably in order to restore economic activity in construction, although why this would make sense given the substantial over-capacity that exists in both residential and commercial property is not clear. He also proposes nationalisation of the banks and repudiation of some or all of their accumulated debts, policies which have been debated and which have found some support on this blog.