Business Irish

Monday 11 December 2017

Too much talk, not enough action on public sector pay

Charles Haughey and TK Whitaker – he wrote frequent letters to the taoisigh of the day insisting that pay remained within the realm of what could be afforded
Charles Haughey and TK Whitaker – he wrote frequent letters to the taoisigh of the day insisting that pay remained within the realm of what could be afforded
Brendan Keenan

Brendan Keenan

THE dreary steeples of Fermanagh and Tyrone are casting their shadows over the salons of Brussels, but there is another quarrel whose integrity is almost as long-lasting - that over public sector pay.

There have been cataclysms aplenty down the years and none greater than the deluge of 2007. As the waters subside, it is public sector pay which reappears as the central issue, just as so often before.

Whatever your views about the role of religion in the northern quarrels, there can be little doubt about the place of the public-sector pay bill in our recurring economic troubles.

Rapid increases played a central part in the crises of the 1980s and 2000s, if in somewhat different circumstances on each occasion.

Go further back and Dr Ken Whitaker is writing anxious letters to the taoisigh of the day insisting that pay remains within the realm of what can be afforded.

Normal enough from a finance ministry but pay for government workers appears to occupy a much more central role - and a much more dangerous one for governments - than in other northern European countries.

Despite all the years of stress and the overwhelming evidence that excessive public spending in general, and pay in particular, has been the single biggest threat to economic stability in Ireland, there has been no progress in agreeing a permanent, stable system for fixing public-sector pay which would remove, or at least alleviate, this ever-present threat.

It is not for the want of trying. All kinds of rules and any amount of learned analyses appeared down the years but, as we approach the 2020s, we are once again making it up as we go along.

Two principles seem to have been established as being at least desirable: that negotiations be done for the sector as a whole, and not individual groups; and that some kind of external analysis should precede negotiations.

The principles are sound enough, and are used in more successful systems elsewhere. Nor are they new - they governed social partnership. But the first was never fully accepted by rank-and-file workers, while analyses from the National Economic and Social Council and Competitiveness Council were wilfully ignored by the social partners, culminating in the infamous benchmarking report.

This month the new Pay Commission will try again, after a decade of cuts and emergency agreements. The first question to be asked is whether the current process is genuine - as the previous one most certainly was not. Its conclusion - large pay increases all round - had already been agreed and the benchmarking report was meant to give respectability to that.

After honest presentation of the facts, the objectives of a pay deal should be the next point of agreement, but rarely has been. There is a longer than usual list this time, headed by the reversal of post-crash cuts on the union side and the perennial demand for productivity on the Government side. To these must be added equal pay for all age groups and a path, at least, towards higher incomes than 2007.

We can expect some of this to be conditional on productivity. It is a difficult thing to define in public services. There is a bit more meat to chew on than in previous bouts, with the Department of Public Expenditure and Reform's civil service renewal and public service reform plans providing some kind of template for what might be done.

Behind the big words, productivity boils down to fewer people achieving the same outcomes (which did happen during the crisis) or the same number of people achieving more.

None of that is ever appealing to any section of workers. The unions' opening position is that any extra work demanded of them during the past 10 years should be withdrawn, or paid for. Their consistent position in the past has been that pay deals are simply income maintenance or enhancement; doing more with less requires extra money on top.

This is the next difficulty - on what basis are government workers paid? There are no profits to be shared with capitalists, as in private firms; only tax revenues from those who pay taxes (including of course public sector workers) in return for services delivered - especially to those whose incomes are less than those of government workers.

Everyone turns their face away from this last uncomfortable truth. There is an inescapable connection between levels of pay and the levels of public provision. The unions argue, with some supporting evidence, that Ireland's total tax take is too low to pay for the services which many northern European countries enjoy.

Others disagree, just as they do about where exactly public-sector workers are on the income scale. What is clear is that no agreement has ever made precise allocations between pay, employment and the cost of services.

Nor did they deal properly with the allocation of money to investment in equipment and facilities. Capital spending is what, if anything, is left over. The results are all to obvious to anyone comparing Ireland's public infrastructure to that of other countries with similar levels of income, or even less.

Any proper agreement on such choices would require agreements on staffing and work practices at a level of detail which has never been forthcoming at a national level. Much necessary investment has been delayed or abandoned because the running costs are unsustainable.

Such sensitivities are why public pay discussions nearly all end up with relativities. The remit of the Pay Commission to include "a comparison of pay rates for identifiable groups within the public service with prevailing non-public sector market rates and international rates and comparisons where possible" will probably end up as central to the talks.

It may be hard to believe but the orthodox official view is that public-sector pay should follow the private sector, so as not to damage the economy's competitive standing.

Easier said than done, as benchmarking demonstrated, but changes to the world order, especially since 2007, make it more difficult still. The tendency in the past has been to select those private sectors where earnings are rising fastest; banks in the case of remuneration of higher public servants, and tech firms when it came to benchmarking.

Nice work if you can get it and there are already signs that it is about to be tried again by public sector unions. But things are quite different in the Irish private sector than they were back then, making comparisons even more difficult and dangerous.

Wages in the Irish business sector have been flat since 2010, having fallen 5pc in the previous two years. In the same period, based on Eurostat data, the productivity of the sector, which excludes manufacturing, has increased by 18pc.

Private-sector workers could argue that they are entitled to recover a large chunk of that difference but it is highly improbable that they will be able to do so. Unless, that is, and despite all the rhetoric and past failures, public sector workers lead the way in a national deal which covers everyone but leaves them doing better than their private sector counterparts. Just as so often before.

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