In Ireland all discussion on public sector pay, wage coordination and labour cost competitiveness ignores the role of collective bargaining in a democratic society. Over 80 percent of employees in the Eurozone are covered by collective wage agreements. The type of wage coordination is generally described as multi-employer bargaining. This means that wages are set by large multi-national firms in negotiation with encompassing trade unions to set a trend for the rest of the economy. Therefore private firms have a public role in collective wage determination. In Germany it is between the Employers Association for the Metal and Electrical Industry (Arbeitgeberverbände der Metall und Elektroindustrie, Gesamtmetall) and the German Metalworkers’ Union (Industriegewerkschaft Metall, IG Metall).

Ireland is totally unique in comparative EU terms in that collective bargaining only exists for unionised companies and coordinated by the state sector. In almost every other European country collective bargaining (i.e. national or sectoral wage agreements) norms are legally extended to every worker in the economy. This does not lead to a lack of competitiveness.  An examination of how Netherlands, Germany, Finland, Austria and other European countries have both internalised the reality of EMU and responded to the crisis would indicate that collective bargaining rather than the market produces better employment and economic performance. It is also more democratic.

Thus, three issues that need to be considered when assessing public sector pay, its relationship to the private sector and the future of collective bargaining in Ireland.

First, recognition that the government is the largest employer in the Irish economy and the public sector is not a homogeneous workforce. It is a complex labour market with internal coordinating problems that government as employer must resolve. Second, a recognition that public sector pay is funded through general taxation and therefore pay will always be treated differently to an employee in a private firm. Thus, public sector pay should follow rather than lead on nominal wage costs. This requires significant institutional and political coordination and cannot happen via market mechanisms of supply and demand. Third, recognition that public sector pay in a European labour market requires cross national comparison. It is not sufficient to compare internal pay trends. These must be contextualized in a comparative institutional analysis to unpack the nuances of specific sectors and firms. Vague terms such as ‘public’ and ‘private’ are useful heuristics but contain too much diversity for a serious discussion on labour market trends.

In relation to the first problem, the Irish government tried to solve the coordination of public sector pay with the introduction of bench-marking in 2002. The concept and process is still relevant today. The outcome, however, was a massive political mistake and it is this that has led to the backlash against social partnership and trade unionism in general. Trade unions cashed the check without the reform. Public sector managers failed miserably to deliver change. It added an additional €1.4bn to the public sector pay bill, the data was never released, benchmarks never disclosed and data protected from FOI. All in all it was a political error and de-legitimised the use of centralised wage agreements to map out a medium term plan for Irish economic recovery that is labour-inclusive. It changed the wage restraint bargain implicit in the national wage agreements and created a situation whereby the public sector became wage leaders.

This was the total opposite of what was required in a fixed EMU monetary regime. IBEC never challenged this as the US MNC sector was well able to internalise high labour costs. Small firms are not. IBEC therefore were acting in sectoral specific business interests rather than the economy as a whole. They face the same problem as ICTU who, in the absence of large organising campaign are faced with the prospect of becoming a public sector organisation (for teachers, nurses and civil servants) with a private sector add on. ICTU and IBEC to act in the collective interest must become encompassing organisations. In the absence of this all discussions on organised labour and the economy will be reduced to insiders versus outsiders.

In relation to the second problem; there needs to be greater integration and coordination internally within the public sector labour market and externally in the private sector. The health sector employs over 100,000 people. It is more than a firm but an entire labour market. The government is the best employer in the country. It provides the best pay, standards and conditions. The wage premium is high (according to all econometric studies). Rather than beat this as a negative it should be used as an example for improvements in the private sector. The only comparable employers in the private sector are large US MNC firms. The labour market is a complex institutional social relation not a price that is determined by supply and demand. From the foundation of the Irish state it was recognised that labour is not a commodity that can be treated like the price of butter.

This attempt to decommodify the price of labour led to the establishment of the labour court and wage setting institutions such as the JLC and REA system. It is the deductive assumption of supply and demand that makes neoclassical economists sound pretty silly when talking about labour markets (we don’t have any serious labour economists left in Ireland). If we want to coordinate pay and ensure that the public sector does not become a wage leader we need a coordinated wage bargaining framework. Or, we need a sectoral coordination based on wage leadership from MNCs that links up with collective bargaining norms in the public sector. This will not happen as MNC firms in Ireland, unlike everywhere else in Europe, are totally disinterested in involving themselves in public institutional frameworks to improve productivity or collective wage costs. Thus, the government as the largest employer will always be a central player in a national framework. This is a reality that cannot be wished away. To improve wage coordination and employment requires more not less labour market regulation.

Third, a comparative analysis will show that the Irish education and healthcare sectors like most countries have a wage premium over their non-existent private sector counterparts. Industrial relations scholars and labour economists agree on this. Fintan O’Toole in a recent article used national averages to show that Irish teachers are paid roughly the same as other countries. I am not sure using national averages is the right way to go. There is a significant difference between what a retired school principal earns when compared to a language support teacher on a fixed term contract. The tails matter and conditions of employment vary significantly. We have too many overpaid managers in health and education. The university is a classic example of top heavy bureaucracy and bottom light teaching and research profession. This trend has to be reversed. It is a challenge to the trade union movement as it will require a confrontation with a comfortable professional membership in the long term interests of young workers who are more often than not, underemployed, precarious and lacking basic security to plan stable lives.

The important difference between Ireland and other European countries is the structural composition of taxation. To fund a well paid public sector that is productive requires a revenue stream that does not fluctuate according to domestic consumption patterns. We do not have this. Thus, the problem facing the public sector is tax not spend and will require trade unions to adopt policies to increase not decrease tax. This will be difficult after 23 years of a political exchange with government premised on decreasing income tax to increase real disposable income. The low tax regime was a Faustian bargain, good for workers but bad for trade unions interested in advancing a social democratic public policy regime. Other small open economies like Netherlands, Denmark, Finland, Sweden, Switzerland and Austria fund public pay through general revenue and the delivery of services through social insurance. There is a cultural ethos that links the private with the public in service delivery. In most of these countries large MNC firms in manufacturing set the lead in national pay norms. They are open and explicit about this. In Ireland, it is only the government and semi-states who are open about pay coordination. Two people in Ireland may sit next to one another for ten years and never know what the other earns. Wage indicators and collective bargaining in European countries makes all of this public and reduces the differential between incomes, particularly as it pertains to gender.

So, if the purpose of a dialogue on public sector costs is to improve national competiveness and generate wage policies appropriate to the EMU then we need to ask what have Google, Intel, Microsoft and every other large MNC in Ireland got to say about national wage policy and why are they not in the public domain? My guess is that the narrow focus on labour costs is more of an issue for neoclassical economists than it is for senior management in these firms. Business actors usually know more about the role of labour costs in production than economists. The more important issue for large firms is long term competitiveness and productive capacity. An ESRI study in 2009 illustrated that national wage agreements in Ireland increased the competitiveness of the export sector. Firms do better when there is centralised rather than decentralised wage bargaining structure (this is before illustrating its impact of decreasing income inequality). Thus, given that the US MNC sector have benefitted from national wage agreements and trade unionism since 1987 they have a collective responsibility to give something back. This might involve the establishment of a national system of innovation that funds small Irish firms to improve long term productive capacity.

Public sector pay should follow the private sector in nominal terms i.e. in a negotiation it should be private sector employers who set national trends not the public sector. This trend setting does not exist in Ireland because our MNCs have been free riding on national partnership for 23 years. Multi-employer bargaining where large manufacturing firms set collective bargaining trends (at firm, sectoral and national level) is the norm across Europe. It is the dominant mechanism of wage coordination (i.e. not the market). In Ireland it is the state that sets the trend. But, the pay and conditions in the public sector should not be seen as a luxury that insiders enjoy and outsiders do not. It should set an example for employees in the private sector to demand more from their employers. Across Europe better working conditions and a wage premium exist in unionised companies. Trade unions improve your standard of living.

Thus, the impact of a labour exclusive strategy of national recovery as advocated by some many economists, political commentators and the Troika will lead to deterioration in the basic standards of working life. Nobody wins from an economy where the balance of power in the labour relationship is totally tilted in favour of capital. Temporary contracts, easy hire and fire practices, decentralised wage bargaining and flexible labour markets will not improve national competitiveness but increase the precarious nature of social relations. This uncertainty makes it difficult to plan families, embed communities and from an economic point of view - make long term investments.  As Marx, Shonfield, Polanyi, Galbraith and so many others have argued - market capitalism needs an organised and representative labour system to protect itself from self destruction.

Aidan Regan is a researcher at the Amsterdam Institute for Advanced Labour Studies, University of Amsterdam.