A great many people are persuaded that Ireland's tremendous economic performance since the late 1980s could not have been achieved without social partnership, writes Jim O'Leary.
Amongst the claims made are that partnership created a climate of industrial peace, that it brought predictability to wage costs and that it helped to project a positive image of Ireland abroad, especially amongst potential foreign investors.
At another level of abstraction I have heard it claimed that social partnership released substantial and previously untapped "resources for governance" (an example of which I suppose would be the estimated 62 committees that were set up under the Programme for Prosperity and Fairness).
However, probably the most significant economic claim made for partnership is that it resulted in wage moderation (i.e. lower wage increases than would otherwise have prevailed), thus improving the competitiveness of Irish producers and boosting output and employment across the economy. How is it proposed that this virtuous circle was put in motion?
The most common answer is, through tax cuts: government agreed to cut taxes and, in return, trade unions agreed to trim their wage demands.
We need to be careful here. Is it being proposed that there was something in the social partnership process (or, more particularly, in the wage bargaining process that formed the core of the partnership agreements) that allowed the Government to come to the table with bigger tax cuts than would otherwise have been possible? This is a big claim that I'll return to in a moment.
Or, is it simply that by announcing tax cuts (that might have taken place anyway) during the wage talks, the government was providing the negotiating parties with information that would influence the outcome in a positive way?
This is a much more modest proposition. Clearly, the elaborate architecture of social partnership is not required for the Government to provide information about its intentions in respect of taxation.
What of the proposition that there was something in the wage bargaining process under social partnership that created greater scope for tax cuts than would otherwise have existed? Actually, there is an extensive academic literature on wage bargaining that sets out how this might have happened.
Basically, the idea is that if the wage-bargaining process involves both private sector and public sector workers together, public sector workers are more likely to consider the spillover effects of their wage demands on their private sector counterparts than they would if they were negotiating separately. And, what is the most obvious spillover effect in this context? It is taxation of course.
In other words, where wage bargaining involves both the public and private sectors together (as under social partnership), public sector workers may settle for lower wage increases than they would otherwise seek on the grounds that in doing so they are reducing the tax burden for all workers. If this idea accurately describes what was happening in Ireland during the 1990s, then it can validly be argued that social partnership increased the scope for tax cuts.
What does the evidence suggest on this score? In particular, is there evidence to suggest that public sector workers in Ireland accepted lower wage increases under social partnership agreements than they might otherwise have achieved? This is a tough question.
To answer it, it is necessary to have some notion of how public sector pay might have evolved in Ireland under a different system of wage bargaining. Here, it is useful to look at international evidence, which reveals two relevant patterns: (i) a tendency for public sector rates of pay to decline relative to the private sector over the last couple of decades, and (ii) a tendency for public sector pay to decline relative to private sector pay when economies are growing strongly.
Armed with this international evidence, an observer familiar with the outstanding growth performance of the Celtic Tiger era, but unfamiliar with our unique wage-bargaining institutions, would almost certainly have expected to see a substantial decline in public sector pay relative to private sector pay in Ireland during the 1990s.
This, incidentally, is precisely the kind of perception that motivated the setting up of the Benchmarking Body in 2000, and continues to be used to rationalise the pay increases it recommended. But it's entirely misplaced, as research that I've carried out with two Maynooth colleagues demonstrates.
That research, previously discussed in this column on April 30th, shows that when allowance is made for a wide range of productivity-related attributes, public sector workers earned 13 per cent more than their private sector counterparts in 2001. Critically, we also demonstrate that this margin was not significantly lower than the corresponding margin for 1994. In other words, public sector workers preserved intact their earnings advantage vis-à-vis the private sector right through the Celtic Tiger period.
What these research results indicate is that the wage bargaining process under social partnership, far from producing lower public sector pay increases, may have generated bigger increases in public sector pay rates than would otherwise have eventuated.
By extension, what this suggests is that the wage bargaining process under social partnership may have reduced rather than increased the scope for tax cuts. And that's before any allowance is made for what has happened since 2001, in particular the benchmarking exercise and its €1.1 billion annual price tag.
It is difficult to reconcile such conclusions as these with the notion that social partnership engendered wage moderation, improved competitiveness and was an essential element in the success of the Irish economy in the 1990s.
Jim O'Leary lectures in economics at NUI-Maynooth
