Public Sector Workers of Ireland Unite (you have nothing to lose but a shed-load of grief) July 22nd: The Recession Diaries

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Boy, have public sectors workers been kicked around the block for drill. They wear the mark of Cain. They are one of the main reasons why the economy is in such rank order. There are too many of them. They are paid too much. They don’t work hard enough. Aren’t you glad you’re not a public sector worker? You can go out at night without fear of being accosted by roving bands of columnists from the Sunday Business Post and Independent House.

This is not much of an exaggeration – if at all. In particular, any chance of having a rational debate on the issue of public-private wage differentials is almost nil. No wonder so many public sector workers just keep their head down. But that’s not good enough anymore. There is a debate going on – and it’s about more than just wages in the public sector:  it’s about all wages (witness the latest attacks on the minimum wage) and about the public realm.  Therefore, it’s time public sector workers stop being defensive. Indeed, it’s time to go on the attack.

I want to suggest three starting arguments that can be used. These are ‘cut to the chase’ arguments: simple to use, simple to understand. In our attempts to ‘explain’, we can sometimes disappear down an Alice-in-Wonderland hole of occupational and educational variables, regressions, differentiations from the mean, etc. Any time a spokesperson for public sector workers is interviewed after the latest statistical outrage – harassed, harried and defensive – trying to explain, you can hear the interviewer drumming his/her fingers until:

‘Yeah, yeah, yeah – but the point is you people are paid squillions and you’re bleeding the rest of us dry. What do you have to say to that?’

Stop explaining. Stop defending. Present the argument in a way that is immediately comprehensible. Use each argument as a building block to the next. Tell a new story. And most of all, be confident.

Compare Like with Like

What is the single best comparison we can use when discussing the public-private differential? To my mind, it is the enterprise-by-size comparison. This is not only because of the obvious issue of scale (employees in larger enterprises earn more than those in smaller ones). There are other similarities which large enterprises share with the public sector:

  • There is likely to be a more varied skill, occupational, age and educational base
  • There are likely be formalised pay scales
  • In-house career paths are likely to be more prevalent with more employees remaining in jobs for longer – length of employment equals higher pay
  • There is likely to be a more developed human-resource infrastructure
  • There is higher union density with collective bargaining rights – three times more than in smaller enterprises – benefiting from the union membership premium
  • A greater proportion of employees have occupational pension coverage – seven times that of small enterprises – this is where you will find most defined benefit schemes

The similarities are consistent – without taking into account other factors (e.g. specific educational achievement, occupational skill necessities, etc.). And as far as comparing like with like – the state is, after all, the largest employer we have. So how do wages compare, employing this like with like?

PS Wages 1

Wow. When you compare like with likepublic sector wages are lower than in the financial sector and on a par with the industrial sector. This shouldn’t be too surprising. In the industrial sector, employees in smaller enterprises would need a 50 percent wage increase to reach the wage level pertaining in larger companies. So when you hear people throwing around larger percentages when comparing public and private sectors remember – those same large percentages exist within the private sector.

Why have I used these two sectors – industrial and financial? Because they’re the only sectors the CSO provides a breakdown by size, along with a weekly average wage (they will be, though, adding more sectors in time – which will give a more comprehensive breakdown).

But these two sectors are useful. Combined, they comprise over 300,000 employees (the public sector employs 373,000, including public enterprise). Over 55 percent of employees in these two sectors work in the largest enterprises. How would the public sector compare with large enterprises in other sectors?

We can only guesstimate, since we don’t have an enterprise size breakdown but the CSO’s National Employment Survey gives some clues. Overall average wages in the Transport, Storage & Communication, and Business Services sectors are below those in the Financial sector but above those in the Industrial sector. So we shouldn’t be surprised if the trend remains the same as above. Therefore:

When you compare like with like – large enterprises with large enterprises – public sector workers earn less than employees in the financial sector and the same as those in the industrial sector.

That’s the first argument.

Public Sector Wages are Growing Faster than Other Sectors

PS Wages 2

Is this the case? No. Public sector wage increases – over the last five years – have been lagging. And that’s with a second benchmarking exercise having been carried out.

Now, we must treat this five year spread with caution. The Financial / Banking wage growth over the five years cuts across two different type of CSO surveys. Similarly, with the industrial sector – but this is likely to be more consistent. Therefore, methodologies and coverage are likely to have changed.

PS Wages 3

But that these can be treated as indicative is suggested by the next table – which is taken from the same wage series.

Unfortunately, this measurement – though consistent – only goes back over two years. Yet, it appears to confirm the trend in the table above.

Namely, that public sector wages have increased less than wages in the industrial and financial sectors – whether we examine wages in large or all enterprises.

That’s the second argument.

But We Have to Cut Wages to Get Our Public Finances Back in Order

Cutting public sector wages will have almost no effect on our public finances. But it will deepen the recession, cut consumer spending (which will drive more private sector enterprises to the wall) and increase unemployment. The ESRI modelled the effect of cutting public sector wages by 5 percent on a once-off basis. Here is what they found.

PS Wages 4 Cutting wages would result in a further fall in the GNP, a substantial drop in consumer spending and a slight rise in unemployment (approximately 2,000 more on the dole).

And what would be the impact on the fiscal deficit? Almost negligible. The decline in the borrowing requirement would mean that the General Government Balance would decline from 12.2 percent to 11.8 percent – a majestic decline of 0.4 percent.

But don’t forget – these ESRI tables were produced before the April Budget. With the hikes in levies and PRSI contribution ceilings, the net savings to the Government would be even less – probably closer to 0.3 percent, and possibly less if it impacts even further on consumption. Therefore:

You can cut public sector wages but it has nothing to do with putting our public finances back in order because the benefit would be fractional at best: 0.3 percent. Is this what we’re debating - a fraction?

That’s the third argument.

* * *

There are other arguments:

  • The Other Side of the Coin: it’s not that public sector wages are too high. Rather, private sector wages are too low. The latest OECD Benefits and Wages database (2007 – when the Irish economy was at its highest ever) shows Irish private sector wages below the average of other EU-15 countries – 7 percent below. And when we take the average of the top 10 economies in the EU-15 (of which Ireland is one), we find Irish private sector wages falling 21 percent behind average.
  • Comparative Public Sector Pay Costs: In 2007, total Irish public sector wages made up 10.7 percent of GNP. The average for the other EU-15 countries was 11.6 percent. In 2007 we’d have to pay out more than €1.4 billion in public sector wages just to reach the average.
  • But There’s Too Many Public Sector Workers: Ireland would have to employ an extra 20,000 to 25,000 civil servants just to reach the EU-15 average.

About now, our intrepid interviewer is probably getting exasperated.

‘Okay, okay – you’ve made your point. But what are we supposed to do?’

And here is where the argument can be turned. For, after showing the failure of deflationist policies – whether it’s cutting public expenditure, public investment or wages (both public and private) – we can now start to talk about what can turn this economy around:

‘You can’t cut your way out of a recession, you can’t tax your way out of a recession, you can’t deflate your way out of a recession. You can only invest your way out of a recession, you can only spend: you can only grow your way out.’

That’s the beginning of a far better, more interesting, and ultimately more productive policy.

Now go out and spread the good word.


One Response

  1. Proposition Joe

    July 23, 2009 8:03 am

    On comparing PS wage costs and numbers with the EU-15, have you taken into account the lower service levels here?

    Universal provision in public health care and pre-school education for example would be much more common across the rest of Europe.

    Its all about bang for our buck.

    So if our public servants cost ~6% less in wages and are ~8% fewer in number, then for those numbers to mean anything we also need to consider the gap in output relative to the EU-15. If this is less than 6%, we’re getting a good deal. On the other hand, if the gap is larger than 8% then obviously we’re not.

    Anyone who has used the NHS or the French heath system will probably have formed their own opinion on this. Those considering our education system relative to that of the UK, may hold the opposite opinion. It would be interesting if the question could be addressed in solid quantitative terms.