Public sector must be paid less -- it's all we can afford
SOMEONE -- was it Big Jim Larkin? -- observed that one could throw all the capitalists in Dublin into the Liffey without much loss, but do the same to the engineers in the power station, and the city would come to a halt.
Whatever about the details, it was another version of the idea that people do not get paid according to the value of what they do, but rather according to what they are able to get.
Supply and demand come into it. In very poor countries, that is often all that comes into it. In more advanced economies, the cruelties of the market are muted by laws on minimum wages and so on.
But power comes into it as well. Trade unions organise to achieve better pay and conditions than employers would freely give out. Their success in doing so varies from sector to sector.
In recent years, there has been a noticeable increase in the organisational power of public workers relative to private sector ones. It is not so much that government workers have become more powerful, but that private sector ones find themselves in a weaker position.
It would not be surprising, in such circumstances, to find that public sector earnings had risen faster. This is what seems to have happened.
The surprise, in such circumstances, would be if the gap had not increased. The first response of the trade unions has been to say that it hasn't. The Impact union says they cannot be taken seriously, because they don't compare real jobs.
That is a handy argument, since there are no gardai in the private sector. There aren't really any civil servants either. There are, however, people. If those of the same age, same sex and same qualifications are compared, people earn more in the public sector.
Public sector unions can fall back on the argument that government jobs are intrinsically more valuable. That case is implicitly being made in the campaign by "frontline" staff, such as gardai, firefighters ambulance crews and so on, but saying that the wage gap does not exist simply flies in the face of the evidence.
Indeed, the figures point to relative bargaining power as the likely reason for the differences. In particular, the 23pc differential for women points to discrimination -- or at least more hostile conditions -- for women in the private workforce. That is also hardly a surprise.
Likewise, the finding that the gap is narrowest at higher salaries also fits in with common sense observation. Private sector managers, even if we ignore bankers' bonuses, do have bargaining power. This gives ammunition to the six-figure earners at the top of the public service in any efforts to avert Brian Lenihan's threatened pay cuts. But even among the top 10pc of earners, government workers get a 6pc premium.
The findings undermine one of the unions' main arguments -- that lots of public sector workers are low-paid. Indeed they are, but they are a good deal better off than their equivalents in the private sector, where the gap in pay is more than a fifth.
It is well-known that there is a big wage premium for qualifications in the private sector, but relativity agreements in the public sector may help narrow the difference between top and bottom.
These figures do not really capture the very top earners in either sector, because they are so few in number. But there seems little doubt that the special awards for secretaries general and, indeed, ministers, have widened that gap in the public sector.
The conclusion that the pay gap narrowed in 2007 is also plausible. It was the last year of the bubble, and economic bubbles expand fastest just before they pop. There is a lot of argument about what happened last year to wages, but policy cannot wait until we find out. The cost of the public sector has grown far faster than the economy -- now that we know how slowly it really grew in the last five years. It is rapidly approaching 50pc of national income -- one of the biggest in Europe. At the end of the day, however long one wriggles, government pay and services must be paid from taxation. As things stand, the tax burden might have to rise by 50pc to meet that cost.
If the economy is not be crushed by rising taxation on that scale, the costs of government will have to be frozen for several years. Ideally they should fall, but at present they are still rising by over 5pc, even as national income falls by 10pc.
There seems to be little understanding of the dreadful bind in which the follies of the last few years have left us. It is hard to see how the country can even begin to come out of it without a pay freeze, and probably not without pay cuts.
The situation would be the same even if government workers did not earn more, but it all seems a bit fairer if it is true that they do. Ultimately, government workers must be paid, not on some notion of their value, but on what is available. Not for the first time in Irish history, they have outpaced those resources.
- Brendan Keenan
Irish Independent
