Income

wageslip

The War on Wages

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Originally posted on Unite the Union’s Croke Park Report blog on the 2nd of April.

It is now clear that a systematic attack on wages is currently underway. This attack stretches across the private and public sectors, aimed at both low and higher income groups. It is nothing less than an attempt to re-order the economy into a low-wage, high profit economy – with the Government playing a leading role.

Croke Park 2 is a crucial part of this wage-cutting strategy. With the economy having returned to recession – and with key indicators (retail sales, industrial production, merchandise trade surplus) indicating that the decline has continued into the early part of this year – cutting wages makes no sense except as part of a long-term strategy to depress wages.

But it is not just the public sector. The Minister for Finance recently called for wages in the covered banking sector (AIB, Permanent TSB, Bank of Ireland) to be cut despite the fact that 40 percent of employees earn an average of €30,000 per year or less.

Private sector employers are getting in on the act. In the low-paid sectors, workers’ wages have been falling back to the national minimum wage level since the Joint Labour Committees (JLCs) were, first, struck down by the High Court and, then, reconstituted in a much weaker form by the current Government.

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I Want to be an Agent of Economic Recovery But They Won’t Let me Play!!!

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One of the keys to an alternative budgetary strategy is to stop cutting current public spending.  This would provide an opportunity to re-direct or re-invest productivity gains and spending efficiencies into expanding growth and employment.  This would be more effective at repairing public finances than the current austerity strategy.

Let’s take an example.  The Government reduces the drugs bill by €400 million.  This is a good cut.  There is likely to be little if any deflationary impact; jobs will not be lost, income will not fall, and growth will not be cut.  This is one of the few examples where a cut actually equals a savings of the same magnitude.

What do we do with that cut?  Do we just remove it from public spending?  If so, the deficit falls by €400 million but not much else happens in the economy.

So, why don’t we do something creative with it – address a social need, increase growth and employment, and reduce household costs?  Why don’t we roll out an affordable childcare programme?

Childcare in Ireland is one of the most expensive in the OECD and has been identified as a substantial cost to households in work, or attempting to return to work.  What would be the economic and fiscal impact of rolling out an affordable childcare network?

Let’s first examine the cost of rolling out such a network.  Deloitte, on behalf of the National Children’s Nurseries Association, prepared a detailed study – Review of the Cost of a Full-Day Childcare Placement (it no longer seems to be available on-line). They calculated the cost providing childcare places – wages, rent, insurance, materials, food, etc.  In 2007 they found that the average weekly cost of providing a full-time childcare place was €227.

I updated costs – by increasing non-staff costs by 10 percent and staff costs by 17 percent (employing childcare assistants at €19,300 is far too low for this important function).  When I do this, the cost of providing a place in a childcare centre comes to €260 per week.

Therefore, the €400 million drug bill saving would, if re-directed, finance 30,000 affordable childcare places.  Does this mean there is no deficit reduction?  Let’s see.

Employment:  The €400 million investment in childcare places would directly create 7,700 jobs – based on the ratios used by Deloitte. Of course, a portion of this would be a transfer of staff from existing private and voluntary crèches so that job creation would not be net.  Still, there would be considerable job creation from this.  This doesn’t count the jobs created/retained due to non-wage expenditure – purchasing materials to run the childcare centres from private sector (purchase of food, materials, etc.).

Impact on GDP:  Being job dense, this investment would increase in GDP by €350 million.  This only counts the wage element of the expenditure.  There would be additional growth from the non-wage investment.

Impact on Deficit:  Using the Department of Finance’s Debt Sensitivity Analysis, this growth would reduce the deficit by €175 million – but this would be slightly higher when the non-wage impact is included.

Fees Income:  If we assume an average weekly fee of €60 per week at 45 weeks, the potential income would be €80 million.  This would reduce the gross cost and, so, feed into deficit reduction.

There’s more. 

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Income Distribution Data Shows What Is Behind the Central Bank’s Agenda

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In the post What’s Behind the Central Bank’s Destructive Agenda to Drive Down Wages? commenter Laura Farrell made a point on incomes and wage competitiveness which I think is worth addressing.

Laura said:

“What neither the Central Bank nor this article accounts for is the inequality in Irish wages. One of the reasons that our “average” looks so high is because of the distortion caused by a small number of very high earners, particularly in public sector funded roles. Lower end roles, even in skilled industries, have been falling lower for years while wages at the upper end take off.”

It’s quite common to get comments like this, which make statements about high and low earners without making any reference to data that is easy enough to access and link to. For example, you could look at the CSO Statistical Yearbook 2011 Earnings which show Irish earnings for last year, or you could look at how earnings in Ireland for several sectors compare to other EU countries.

However, rather than wading through that you could read this article by Dr Micheál Collins of the Nevin Economic Research Institute (NERI) which provides a great deal of clarity on the issue of income distribution using the CSO data. It’s so clear in fact that I thought it worth including in full here:

“Each year, since 2004, the Central Statistics Office (CSO) has collected detailed information on the income and living conditions of a representative sample of households across the Republic of Ireland. In general, the survey covers more than 5,000 households and 12,000 individuals. The information provided by this survey is useful for understanding the spread of income across households and it highlights the current and persisting gaps in the distribution of that income between rich, poor and middle income families. The latest data, published in March 2012, is for the year 2010; a year when the recession continued to bite and the wage reductions, welfare cuts and tax increases of various budgets were continuing to have notable impacts on Irish families and the challenges many face to make ends meet.

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It’s Called Hunger

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A new report is out - Constructing a Food Poverty Indicator for Ireland.  It estimates that one in ten people experienced ‘food poverty’ in 2010.  In other words, hunger. I know the phrase ‘must-read’ is sometimes over-used, but this is truly a must-read report. The very idea that one-in-ten of our neighbours suffer from food poverty is truly frightening.  Maybe you won’t be guaranteed a job, maybe you won’t be guaranteed free medical care regardless of your need, but surely in a civilised society we can ensure that no one goes without food.  That we can’t, that we don’t, says something about the kind of society that is being created for us.

This estimate produced by Caroline Carney (General Council of the Bar of England and Wales) and Bertrand Maître (ESRI) is based on a careful methodology.  It uses deprivation indicators that relate to food in the EU’s Survey of Income and Living Conditions:

  • Inability to afford a meal with meat or vegetarian equivalent every second day
  • Inability to afford a roast or vegetarian equivalent once a week
  • Whether during the last fortnight, there was at least one day (i.e. from getting up to going to bed) when the respondent did not have a substantial meal due to lack of money
  • Inability to have family or friends for a meal or drink once a month

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