Drawing Lessons from the Public Sector Pay Talks

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With the public sector pay negotiations getting underway, it is timely to step back from the details and look at the broader landscape.  For it is clear:  if the wage structure in the overall economy mirrored the wage structure in the public sector, we would have a more prosperous economy and society; the recession wouldn’t have been so hard, the recovery wouldn’t have been so delayed, and the social deficits arising out of inequality would not be so endemic.

While there is much focus on the private-public wage differential, there is less attention paid to the distribution of wages from the bottom to the top – which is the key to long-term sustainable growth and better social outcomes.  Let’s have a quick look at the former first.

The CSO has done exceptional and detailed work on comparing private and public sector pay.  The lazy comparison is to compare the headline average private and public sector pay.  However, this comes up against the like-for-like dilemma.  For instance, there are no hospitality workers in the public sector; there are no Gardai in the private sector.  Without a like-for-like comparison you get all sorts of numbers that don’t tell you much.

The CSO has compensated for that – comparing professions, age, duration of employment, size of enterprise, educational qualifications.  When they do that, they come to some interesting conclusions.

psp1

Among this grouping – which makes up the overwhelming majority of public sector workers – the ‘premium’ (i.e. the additional amount public sector workers above private sector workers) is a little more than one percent higher.  On a like-for-like basis, public sector workers earn fractionally more than private sector workers.

What is more interesting is the gender difference.  Men in the public sector actually earn less than males in the private sector – two percent less.  However, women in the public sector earn five percent more than their private sector counterparts on a like-for-like basis.  And this is a good thing when one considers that women still face pay (and other types of) discrimination in the workplace.   If there was less gender discrimination in the private sector, the overall public sector premium would probably turn negative.

Just one more word:  This data comes from the CSO.  Since 2010 there have been small wage movements.  Between 2010 and 2014 (4th quarter):

  • Increase in private sector weekly earnings:  2.3%
  • Increase in public sector weekly earnings: (-0.7%)

While we would have to consider compositional effects, it is reasonable to assume that, as we write and read this, there is no longer a public sector premium.

Ok, having established that there is no difference in public and private sector pay, we can turn to the main point of this post; namely that the economy and society would be better off with the public sector wage structure.  What does that mean?  Again, the findings of the CSO’s report provide an interesting comparison.  The fact is that at lower wage levels, public sector workers are higher paid; at higher wage levels, private sector workers are better paid.

psp2

As seen, when the comparison is made at the lowest 10 percent wage group, public sector workers are paid 11 percent more than their private sector counterparts.  This grouping would include clerical and secretarial, general workers (local authority), new entrants, etc.

Conversely, higher paid public sector workers – senior managers, upper professionals – earn less than their private sector counterparts.  At the higher end, they earn 9 percent less.

For women, the progressive trend is reinforced.  At the low range, women in the public sector earn 15 percent more than their private sector counterparts; at the upper end, they earn 5 percent less.

The public sector wage structure – distributing income away from those on high earnings towards those on lower earning – would, if replicated across the economy, be a major boost to our economic and social fortunes.

  • Workers on lower incomes have a higher propensity to spend their income.  Boosting those incomes raises the spending power in the consumer economy.
  • Higher wages at the lower end reduce the subsidies paid out by the Government in the form of Family Income Supplement.
  • A more compressed wage scale increases the social benefits flowing from greater equality outcomes.

Had the public wage structure been replicated across the economy when the crisis hit, it would have lessened the impact of the recession.  In a recession, people withdraw their spending as they anticipate difficulties ahead – increased taxation, reduced income benefits (e.g. Child Benefit), greater assistance to their children and family members (e.g. children losing their jobs, falling into housing arrears, etc.).  However, if earnings are distributed more equally, those groups with a high propensity to spend can mitigate this effect.  One of the lessons of the recession – both here and throughout Europe and the US – is that highly unequal distribution of earnings can damage an economy’s ability to maintain spending when it is in decline.

So how does the public sector manage this?  Because the process of wage formation issocialised.  Workers, as a rule, have access to the right to bargain collectively, bargaining over all grades and occupations, supported by dense institutional layers of worker-employer relationships.  All this is socially or, if you will, politically created.

This doesn’t mean that it works to the benefits of employees all the time.  Irish public sector workers have taken a real hit in pay – three times.   However, even when taking a hit, the socialised process can ensure that the hit is equitably distributed (e.g. those at the top took a higher pay reduction than those at the bottom).  Cold comfort, maybe.

But in the private sector, where such socialised processes don’t exist throughout every sector or every firm, it can sometime be every man and woman for him/herself.  Collective bargaining is limited with wage negotiations individualised and much more exposed to the power of the employer.

So how can we adjust?  Take the best that the public sector has to offer and apply it to the private sector.  Right to collective bargaining; statutory wage bargaining in sectors where labour is weak and fragmented – expanding and strengthening the current limited application of Joint Labour Committees; limits to exploitative work practices such as zero-hour and fixed term contracts.  In other words, provide more rights and power to labour so that it can achieve more equitable outcomes.

While much commentary on the public sector pay negotiations will focus on how much is available, or whether the economy can afford it, or who will get what, let’s not forget the wider picture – that what is happening is the commencement of a more egalitarian and socialised process.

And this process, if it starts spreading throughout the economy, can only do us good – good for private sector workers, good for the economy, good for society.

For all our sakes, let’s hope the talks go well.

 

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