Open Season on Public Sector Pay (Again)

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It’s starting.  When the penny drops and the incoming Government finds there is less money in the kitty than their manifesto promises were based on, the scramble for scarce resources will be on.  And the scramble to have a go at public sector workers – that will be on, too.  This from management consultant Eddie Molloy in the Sunday Business Post (behind a paywall):

‘That (the Lansdowne Road Agreement) was clearly a sweetener with the prospect of an election ahead.  Before disability, homelessness, flooding or anything else got a look in, a big chunk of the available funds had already been given away.  The government chose pay restoration over services restoration.’

Ah, c’mon; public sector workers – in particular, the low-paid (the Lansdowne Road Agreement gave these workers an additional boost) – took from the disabled and the homeless?  Interesting that Molloy didn’t write: ‘The Government chose tax breaks for high income groups over services restoration’ or ‘massive subsidies to the corporate sector over services restoration.’   No, just public sector workers.   This is the type of argument we’re going to get – and it will probably get even more extreme.

Colm McCarthy, too, is not too keen about public sector pay increases.  But at least his argument is one that can be engaged with.  He rightly states that there’s little fiscal space; that’s probably an overstatement.  He goes on to say:

‘Should a government be formed, an immediate priority should be to inject some reality into the discussions about public service pay. Are public servants poorly paid, relative to those in the private sector and in comparable public employment in the UK and elsewhere? The best way to compare, taking account of pensions and job security, would be a thorough benchmarking exercise, done openly and with all details published.’

Ok, let’s throw some reality into this discussion.

First, let’s measure public sector pay (employee compensation) as a percentage of GDP.  For Ireland, I use the Irish Fiscal Council’s hybrid-GDP measurement, a compromise between GDP and GNP.

PS Pay 1

Ireland is well into the bottom half of the table, below the average of other countries.  It should be noted that in some countries like Germany not all public sector pay is on the books.  For instance, in the public health system, public sector pay is off-the-books, courtesy of quasi-public corporations (money spent is categorised in different ways).

It should also be noted that according to the Irish Government, public sector pay will fall from 9.8 percent in 2016 to 8.4 percent by 2021 (using the hybrid-measurement).  And that’s including the full cost of the Lansdowne Road Agreement.

So by this measurement, Ireland scores relatively poorly.  Of course, we need to dig further as the total amount of public sector pay is determined by both pay levels and the number of employees – and in many EU countries there is much higher level of public sector employment.

So turning to our second measurement, let’s look at Public Administration pay as presented in the National Accounts.  This is a useful category as it includes all public sector employees not categorised as Health or Education (i.e. civil servants, public agencies, local authorities).  Public Administration makes up 100,000 or approximately 1/3 of all public sector workers.  How does this compare?

PS Pay 2

Again, on a straight hourly compensation comparison we find Ireland in the low-half of the table.

  • The average EU-15 pay is 16.2 percent above Irish levels.
  • The average pay of Northern and Central European countries (NCEE – this excludes the poorer Mediterranean countries) is 23.1 percent above Irish levels.
  • The average pay of other Small Open Economies (Other SOE; our peer group – Austria, Belgium, Denmark, Finland and Sweden) is 24.2 percent above Irish levels.

So by this measurement we are still performing relatively poorly.  Unfortunately, we can’t use the National Accounts to compare health and education as they include all employees – public and private.  In Ireland, more than half of the employees in the National Accounts health sector are in the private sector.  Though not as extreme in the education sector, this sector is complicated by countries measuring hours worked differently.

However, in Ireland both education and health public sector pay – based on average weekly earnings – is below the average of civil servants, which make up a sizeable proportion of Public Administration pay.

A third measurement is a comparison of public and private sector pay.  The last detailed comparison (factoring in age, length of work, education, etc.) dates from 2010.  At that time the CSO found that public sector employees enjoyed a premium of 1.3 percent after the pension levy was deducted.  For men, pay in the private sector was higher while for women public sector pay was higher (reflecting less gender discrimination?).  What’s also worth noting is that at the higher income end, private sector employees earned more.

Since 2010, hourly earnings in the private sector rose by 1.6 percent; in the public sector they fell by 2.8 percent.  So what little gap there was in 2010 is probably gone and even gone negative for public sector employees.

So, yes, let’s have an evidence-based debate on public sector pay.  In the above we find that Irish public sector pay makes up less of the total economy than in other EU-15 countries; public administration pay falls well below other European averages; and there is no gap between public and private sector pay.

That’s the great thing about evidence.  It helps us define problems in more concrete terms.   We don’t have to rely on ‘expert assertions’ or dodgy headlines.

And an additional benefit is that we can bat away nonsense commentary that suggests workers receiving pay increases – whether private or public – are somehow forcing more children out of their homes.

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One Response

  1. enlil

    April 26, 2016 1:46 pm

    the graph (above) shows that countries like denmark have more public sector workers than here.
    the local authority and library workers here are authoritarian and even seem arrogant to the (disenfranchised) public.
    maybe this is not so in denmark etc., and should jobs be increased, to let them see
    they are NOT the social/ethos ‘authority’ of the ordinary public.