Sunday 17 November 2019

Government must stop those who shout loudest grabbing the fruits of recovery

Taoiseach Enda Kenny Photo: Frank Mc Grath
Taoiseach Enda Kenny Photo: Frank Mc Grath
Dan O'Brien

Dan O'Brien

The Government has come out fighting in 2015. One manifestation of this was the Taoiseach's article in the Irish Independent on Monday. Enda Kenny was ambitious in what he wants his Government to achieve for the remainder of its time in office and beyond, citing as top priorities more jobs for those without them and higher pay for those with them.

Yet he did not address in his article - nor has he done so elsewhere - what is among the most difficult questions this country faces: how to prevent those who shout loudest from appropriating for themselves whatever gains become available from the recovery.

History warns that when economics and politics collide to create such choices there is reason to be concerned. More specifically, the history of social partnership in the bubble years up to 2008 makes those concerns particularly acute.

From the millennium year 2000 until the crash, the public sector pay bill rose by a staggering 138pc, four times greater than the average across the Eurozone. There was no justification for increases of this order. Indicative of the unfairness of what happened was that average earnings in the public sector rose to a full 50pc above those in the private sector.

And for all the trauma of the years since the crash, there are no shortage of vested interests who want - and expect - to again wield the sort of influence that they were able to wield when the partnership process became little more than a mechanism for the government of the day to buy them off.

In the discussion of public sector pay it is necessary to state clearly that to oppose reinstating bubble-era pay levels is in no way to be hostile to the public sector - those in the employ of the state took large and unexpected hits to their incomes and it is perfectly understandable that they would seek to earn more.

It should also be said that state sector is not parasitic, as some would have it. Rather, a well-functioning civil service, health system, semi-state sector and education system can enhance both citizens' quality of life and economic growth.

But there is no case for restoring pay to bubble-era levels. That is because all available evidence points to Irish public sector workers even now being among the best paid in Europe. In terms of the numbers employed relative to the population, hard comparative data show the Irish public sector is not, and has never been bloated compared to our European peers. That very fact forms one of the most important planks for opposing moves to restore bubble-era pay levels.

In 2012, the most recent year available, the public pay and pensions bill amounted to 11.5pc of GDP, above the average in the EU. As a share of GNP, often considered a better measure of the real size of the Irish economy (as it excludes multinational profits), public sector remuneration stood at 14.1pc, the sixth-highest level among the 28 members of the EU.

As most of the countries with similarly high or higher pay bills have far greater numbers working in the public sector (in the Nordic countries in particular) it is clear that average earnings remain among the highest in Europe.

That conclusion is corroborated by a study* by the European Commission published a little over a year ago. It looked at the differential between pay levels in public and private sectors in 26 European countries.

In the most egalitarian countries average earnings in the public sector are lower than in the private sector, reflecting greater job security and guaranteed pensions. Ireland is very different.

Trade unions and others have attributed the 50pc public sector pay premium to higher skills levels than in the private sector. But if that were a valid reason for the large gap that exists, it would also be the case in other countries where labour markets and skills levels are broadly similar. It is not.

The study found that even when different education levels are accounted for, the public-private pay gap is bigger in Ireland than anywhere else.

With pay rates in both public and private sectors having stagnated in recent years, the picture is likely to have changed very little since the study was completed. So if there is no case for returning already high public sector pay to 2008 levels, how can the Government resist the pressures of public sector unions?

Central to preventing those who can threaten most disruption from grabbing the fruits of recovery is the removal - as far as is possible - of public sector pay setting from the political process.

In order to have any chance of depoliticising public sector wage bargaining, an independent commission - along the lines of the Low Pay Commission the government is establishing to set the minimum wage - is needed.

An entirely independent body - as exists elsewhere - would make recommendations on public sector pay awards based on affordability, comparisons with private-sector equivalent positions and comparisons with public-sector employees in peer countries. Without such a transparent mechanism, public sector pay bargaining will almost certainly revert to bad old ways, something that would compound unfairness and erode competitiveness.

On a range of issues it is worryingly evident that too little has been learnt from the disaster that befell this economy. Among the many mistakes made in the pre-2008 period was allowing public sector pay to run out of control. That the Government has done nothing to change institutional arrangements so that it does not happen again is a real failing. It should be rectified before it is too late.

* http://ec.europa.eu/economy_finance/publications/economic_paper/2013/pdf/ecp508_en.pdf

Irish Independent

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