Saturday 24 August 2019

Dan O'Brien: How the Government continues to prioritise public sector pay levels above all else

Don't expect the inequality between public and private pay to change in Budget '19, writes Dan O'Brien

CASH WOES: Minister for Finance Paschal Donohoe is under pressure from the public sector unions to have their members’ pay increased to bring it back in line with pre-crash levelsof. Photo: Justin Farrelly.
CASH WOES: Minister for Finance Paschal Donohoe is under pressure from the public sector unions to have their members’ pay increased to bring it back in line with pre-crash levelsof. Photo: Justin Farrelly.
Dan O'Brien

Dan O'Brien

In Britain, the average public sector worker earns £524 (€592) a week, according to the most recent figures from that country's Office of National Statistics. That was less than 1pc above the pay of the average British private sector worker.

The latest figures from the Irish State's statisticians show that average weekly earnings in the public sector here are €959. That is more than 40pc higher than in the private sector.

That's 1pc versus 40pc. This is a very big difference. It is enormous when one considers there is no great difference between the public sectors in the two countries.

There are good reasons why pay in the public sector can sometimes be higher than in the private sector - in developed countries, the average government worker has, for instance, more educational qualifications than his or her counterpart in the private sector.

Those who downplay or seek to justify the huge public-private pay gap in Ireland make much of factors such as these.

They make much less of factors that work the other way. That public sector workers are immune from redundancy and that they enjoy much better pension arrangements are two such factors.

Many people who are more risk-averse are attracted to careers in the public sector because they want more security during their working lives and during retirement.

Countries in Europe that are serious about fairness reflect all factors in public pay. Britain has many faults, but it long ago put in place fair mechanisms to determine pay for workers employed by the state. It is for this reason that there is little difference between public and private sector pay in that country.

Because the composition of the public sectors in Ireland and Britain are very similar, there is no good reason why the Irish public pay premium is so enormous, and why it has been so consistently enormous.

But there is a bad reason for the massive gap.

The central reason is not public sector trade unions, often portrayed as the villains of the piece. The reason is an unwillingness of the political class to stand up to an interest group that does what all interest groups do - grab as much for their members as they possibly can, regardless of the impact on the rest of society.

Because lobby groups are not philanthropic organisations out for the betterment of everyone, those who are elected by everyone - parliamentarians and the government of the day - have a duty to stand up for the wider good. Fairness demands it.

Countering the special pleading and spin of interest groups is what good governments do.

The current Government, like its predecessors, has not done that when it comes to public sector pay. This is to be seen not only in the huge gap between workers in the public and private sectors. It is also to be seen in how the Government has put boosting pay over other priorities in successive budgets.

Since the public pay bill began to rise again in 2014, it has gobbled up more than half of the total increase in government expenditure.

Last year, the EU-harmonised measure of public pay and pensions stood at €20.7bn, according to the CSO. That amounted to an increase of €2.3bn on 2014 when the pay bill reached a post-crash low-point. That was more than the increase in all other public spending combined.

To put that another way, the rate of growth in the public pay bill has far outstripped the rate of non-pay government spending. It has not done so by a small margin or even at twice the rate. It has risen at a rate of more than three times that of other spending (to be precise, 12.6pc versus 4pc).

The degree to which this Government and its predecessors have been willing to use taxpayers' money to appease one of the country's most powerful lobby groups is evident in the share of total government spending that goes on pay compared to peer countries.

The latest Eurostat figures show that in Ireland, it is the seventh highest among the 28 countries of the EU. It is far above both the average in Britain and the average across the EU as a whole. And that is despite Ireland not having an unusually large number of public sector workers in the workforce.

Pay "restoration" is a prime example of all parties' unwillingness to face down a powerful lobby. Restoring pay to bubble-era peaks was always an exercise in inequity.

Public sector pay not only grew rapidly in the years running up to the crash, it outstripped private sector pay growth.

These pay increases were funded by property-bubble taxes which promptly disappeared when the property bubble collapsed. These revenues have never been "restored".

That means that returning public sector pay to 2008 levels means reaching into the pockets of other workers whose taxes are not even close to being restored to the levels of a decade ago.

This straightforward transfer of resources from people who are, on average, paid less to people who are paid more is among the most inequitable features of Irish life.

If there is a valid criticism of public sector trade unions, it is that the gap between this reality and their rhetoric on equality is as yawningly wide as the public-private pay gap.

The narrative around "pay equality" for workers hired after 2011 has faced as much push-back from the Government and other political parties as the restoration of pay to bubble era levels.

Older workers in the public sector get paid more than younger ones for doing exactly the same jobs.

According to the OECD, for example, primary teachers with 15 years' experience earn 10pc more than those with 10 years' experience. This is pay inequality.

Again, comparison with the UK is instructive. There is no change in pay based on seniority in either England or Scotland, according to the same source. Across the water, it is equal pay for equal work, regardless of your age. In Ireland, the system is structured so that people get pay increases purely on the basis of the duration of employment.

The same people who support this form of pay inequality are now demanding retrospective changes to post-2011 contracts for those who voluntarily signed up to jobs fully aware of the terms and conditions to which they were signing up. They understood that these terms and conditions were less generous than people who got in earlier. They were not forced to join the public sector.

To demand retrospectively that the contracts voluntarily entered into be changed and that those who signed them be awarded thousands of euro more each year, which others have to pay for, is profoundly unfair. To have it dressed up in the clothing of equality is a sham.

The Government has not challenged this. And don't expect much to change in Budget 2019. A further increase of more than half a billion euro had been slated for public pay next year. If past over-runs are anything to go by, it will probably be more.

Data and graphics on the issues discussed in this column have been tweeted at @danobrien20

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