Public Sector pay in Ireland & the €50,000 question: It’s not that difficult!

Watching Monday’s Questions & Answers, I became increasingly baffled as to how poorly understood the gap between public sector and private sector pay in Ireland actually is. I conducted a mini-straw poll, through the various media of living room chat, email and Twitter. That poll made me realise that while I had been labouring under the presumption that despite all the stats we have on wages across sectors, those stats were having no impact, others were labouring under the presumption that the debate had to be kept at a general level because we had no statistics on the topic.

The guts of a decade ago, I undertook some research for Prof. Frances Ruane on the original benchmarking deal. What we found at the time was that there was no gap emerging between public and private sector wages, or if the gap was there at all, it was in favour of public servants. For those interested in more on that 2001 perspective, I’ve embedded a version from Scribd at the very bottom of the post.

Given the way this week is going, with public sector unions somewhere between agog and apoplectic at the idea of having their wages reduced, and given that no-one in public discourse (if Q&A is representative) is quoting these figures, I thought it might be no harm to see if I could do up what we in the business call “a one-slider” that might make them understand the decision a little better.

First, a general comment about public sector pay cuts. This can’t possibly be that much of a surprise to anyone in the public sector. After all, this is what they signed up to in 2001, with benchmarking. Benchmarking may have been an incredibly expensive way to do it – costing the economy €1bn+ every year and counting – but it did establish a principle in public sector wages in Ireland. That principle is that trends in public sector wages must mirror those in the private sector. It’s incredibly cheeky of those happy to have the principle applied in the good times to argue that they shouldn’t have to ‘bear the brunt’ of having the same principle applied in the bad times.

Now for the one-slider!

Graph of public and private sector wages, Ireland, 1998-2008

Graph of public and private sector wages, Ireland, 1998-2008

And in true consultant style, three key points from the above graph:

  • Lest we forget the most obvious, in every year of the series, public sector workers were paid more per year than their private sector counterparts*. 30% more on average! (There may be perfectly legitimate reasons for this, for example average experience/years worked may be higher, responsibilities may be greater… but a priori, who knows?)
  • As you can see, the gap has widened, not narrowed over the decade. In fact, in euro terms, it widened 8 years out of 10! And after the two years of greater private sector increases (prizes for eyesight if you can spot them on the graph), there were huge increases in public sector pay the following year.
  • Public sector pay is at least five years ahead of private sector pay. What public servants earned in 2003 took their private sector counterparts until 2008 to earn (in fact, they’re not even there yet, another €500 or so to go!).

With the Live Register now rocketing towards 400,000 and private sector wages now stagnant, bonuses disappearing, total earnings in the private sector are falling. Therefore, according to the principle of benchmarking, so must public sector wages. As they are paid €50,000 on average, compared to average wages of less than €38,000 in the private sector, this won’t be the biggest economic calamity to befall Ireland this year. Now, can we please incorporate this knowledge into our social dialogue?

* Public sector includes public administration and education, but excludes health. No data there for some reason. Private sector includes all sector apart from agriculture (again no data). Some other methodological notes: I have had to assume Q4 figures for 2008 equal to Q3 in some instances or just take the average for the first three quarters, as Q4 data are not yet out. Construction figures only start in 2004, while manufacturing/industrial wages end in 2007, so I have had to use rates of change for the remaining sectors in those time periods, but the level of wages is determined by the full sample of private non-agricultural wages.