Further wage cuts look to be only way forward
AS might be expected, the public service is the master of detail and small print; and nowhere better than in the small print of pay and pensions.
What looks the same from a quick glance, in both public and private sectors, often turns out to be very different in detail.
Public sector pensions, for instance, are not really pensions at all, but half-pay for life, paid for in just the same way as salaries during working years.
Even the tax-free lump sum available to retirees becomes, on closer inspection, an additional payment for government workers, but a deduction from their pension for private sector employees.
With pay, the hidden public sector gem is 'increments' -- the payment of guaranteed increases according to length of service.
They are not a secret, of course, but they are hard to spot because they are not counted in national wage agreements.
These would announce proudly that all workers would get, say, a 3.5pc national increase. But this did not include increments, so public- sector workers actually got more than 3.5pc.
This helps explain why their actual earnings have been rising faster than their private counterparts and why, even in the absence of a new national deal and all the talk of cutbacks, the wages keep going up.
This is now politically embarrassing, as wage cuts are widely imposed across the private sector. Just how widely, we do not know.
There are no really comprehensive, timely figures for wages in Ireland, which is a great pity in current circumstances, but there are claims that average private sector earnings may be down by around 3pc in the past 12 months.
The CSO data goes only to last December, and there was little sign of any fall in private earnings at that stage.
It is probably true that most pay cuts have happened since then, while the CSO figures show only that government wages are rising more slowly than they were. That leaves a perception problem, where people whose pay has been docked will be very upset at the sight of others apparently getting away unscathed.
Of course, government workers' incomes have fallen, with the increase in their pension levies. But that will not show up as lower earnings nor, more importantly for those involved, will it mean smaller pensions.
These issues of perception may become politically important in coming months, but they are not the biggest challenge facing the Government.
To get the public finances back in balance, public spending will have to remain virtually frozen for several years.
That means freezing, or even reducing, the public sector pay bill, which is made up of wages, plus numbers employed.
Numbers will have to fall, but will actual wages have to be cut as well? That is the Big One, but there is nothing easy about cutting numbers. Numbers were still rising in the 12 months to March, albeit not by much.
Outside of health, there was a 3,000 decline between December and March, which is unusual for that period. Health sector jobs were up by 8,500, reversing falls seen at the beginning of 2008.
According to some estimates, just not filling vacancies would reduce public employment by 11,000 a year.
That has been the tactic of governments in the past, but it does terrible damage to the quality of services.
The damage might be even greater this time because contract workers, who provide much of the extra services, are also being let go. Reports suggest that An Bord Snip Nua will propose chunks of government operations which could be scrapped altogether.
Everyone knows such exist but, like the great herd of quango created by recent governments, they are not easy to cull. Nor will it do any good unless the staff working in these pointless operations can be transferred elsewhere.
Mr Lenihan is moving on compulsory transfers, but that will require either a sea change in the attitudes of trade unions, or the mother of all battles.
Even if attitudes did change, pay cuts might still be needed. More than one study has found a 40pc difference between public sector earnings and equivalent private ones.
It appears to be the biggest such premium in the EU. Not only that, surveys suggest that average Irish earnings, at €40,000 a year, are the fourth highest in the EU.
Until the recent tax rises, disposable income of €33,000 in the average Irish pocket was the highest (except, as always, for Luxembourg).
A rational conclusion would be that Irish pay costs ideally should fall by around 20pc, with bigger cuts for public sector workers, to reduce their premium, and even larger ones to correct the bigger premium enjoyed by top public servants (and ministers).
Nothing like that is going to happen in practice -- although an investor starting a new project this time next year may well get willing staff for 20pc less than he would have paid last year. But the idea that nothing at all need happen to these generous earnings, public and private, requires a very optimistic view of the Irish economy's productivity and prospects.
