September 23rd Morning: The Recession Diaries

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handchange.JPGAh, the low-paid – if words were money they’d be living on easy street.  Everybody wants to help the low-paid.  Certainly, Fianna Fail was determined to.  Shortly before becoming Taoiseach, Brian Cowen had this to say:

‘In terms of those families whose income earners would be classified as low paid or who are dependent on social welfare payments . .  the Government’s priority has been firmly focused on protecting the most vulnerable.’

Even Fine Gael, chomping at the bit to cull as much of the public sector as possible, called for low-paid public sector workers to be exempted from real pay cuts.  ICTU entered the negotiations determined to provide extra protection for the low-paid from the ravages of inflation and ‘back to the future’ Government cutbacks.  Every other worker might get a good housing, but the low-paid would be exalted.

So what happened?

The draft pay deal does provide an extra supplement for the low-paid. That might seem game, set and match – until you actually put the provision under the microscope.  And microscope is an apt term, for the provision is, itself, microscopic in its effect.

In the private sector, workers will endure a pay freeze for three months.  Then, they will receive 3.5 percent for the next six months. Then they will receive 2.5 percent.  And here’s where the low-paid provision kicks in.  If your wage is below €11 per hour by the time you’re ready to receive the 2.5 percent, you will get an extra 0.5 percent.  That’s right – a whole half percent.  What does this mean in the market-place of life?

Let’s take two workers – one earning €8.90 per hour and one earning €10.90 per hour.  For the former – the low-paid provision means an extra four cents per hour.  For those on €10.90 – five cents per hour.  That’s right – four to five cents per hour.  Now I don’t want to begrudge any increase in people’s living standards but doesn’t that look a tad. . . tokenistic?

So the low-paid will be exalted by €1.60 to €2 weekly – paper-clip money, really.  And that’s before tax.

ICTU went into the negotiations with reasonable, affordable demands:  €30 per week.  For someone on €8.90 per hour this would have amounted to a 9 percent increase – or 77 cents per hour.  To my mind it’s not enough but it would have been a start.  But this 77 cents got whittled down to 4-5 cents.  That’s quite a lot of ground to give in any negotiation.

Of course, the employers claimed they couldn’t afford it (indeed, ISME is predicting all manner of Old Testament plagues with even the 4-5 cents the low-paid got).  The problem is that the employers never provide evidence of their claims.  They don’t publish papers or cite studies or present data.  They just fold their arms and repeat their mantra ad nauseum,‘Can’t pay, don’t wanna pay, ain’t gonna pay’.  And that’s the sum total of their contribution to the debate.

Is there independent data that can give us some insight?  There is, but the problem is that the data lags a couple of years behind.  But let’s work with it – the CSO’s Annual Services Inquiry – and see what we can come up with.

In 2005, the non-financial service sector, where most of low-pay exists, had a total turnover of over €167 billion.  Personnel costs (wages, payroll taxes, pensions, etc.) were nearly €19 billion – or about 11 percent of total turnover.  What would be the effect of a €30 per week pay rise (€26 in 2005 wage terms)?

0.45 percent.  That’s it.  0.45 percent.  If this ‘cost’ were to be fully passed on to the consumer, a €100 shopping basket would increase by 45 cents.  But, of course, this wouldn’t be passed on in full to the consumer (though the Irish entrepreneur would probably do it anyway and blame their workers).  All a company would have to do is sell an extra 45 cents worth of goods and services for every €100 they sell already.  Or they could cut back on their level of profits.

We know from the OECD, EUROSTAT and the EU KLEMS Database that Irish companies have one of the highest profit levels (the new union UNITE has collated this data in its ‘The Truth About Irish Profits’).  Were Irish companies to fully absorb the increased payroll costs it would mean a reduction of 2.8 percent in profits in the service sector.  This would still leave Irish profit levels among the highest in the EU-15.

Might this not impact on smaller companies more?  Apparently not.  Small and medium-sized enterprises would suffer less of an impact on their turnover (0.42 percent) than would larger companies.

A more serious objection, however, is that these are 2005 figures – but now the economic landscape has changed substantially.  True enough – but these are the latest data we have (the CSO will be publishing 2006 figures in the next couple of weeks – I’ll update all this then).  But there are two responses to that:

First, employers should come forward with their own data, rather than shouting assertions.  Or, the Government could have commissioned the CSO to conduct an up-do-date survey so that the results could have been presented to the social partners during the negotiation.  They certainly had the time and the CSO has the expertise.  This failure to present or gather concrete information means that negotiations with important consequences for the economy are not conducted on the basis of evidence but rather on unsubstantiated conjecture.

But, second, all companies have a ‘get-out-of-the-wage-increase-jail’card – they can present their accounts to the Labour Court and plead inability to pay.  So what is the problem?  If a company can afford it – pay it; if they can’t, prove it.  That’s the very basis of wage agreements for the last 20 years.

There’s no sense in blaming the ICTU negotiators – look what they were up against.  One of the most backward employers’ organisations in Europe (and that’s saying something), a government pursuing policies more right-wing than the US Republican administration – all backed-up by some of the most vicious anti-worker, anti-public sector commentators in any European media.  That the ICTU negotiators got anything is a testament to their perseverance and stamina.

The question, therefore, is not whether ICTU got the best deal it could; it did.  We now have a new question:  can workers themselves get a better deal bargaining locally with their own employers.  If the answer to that is yes, then trade unionists will reject the proposed pay deal.

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