The recommendations on public service pay are good news for the taxpayer, writes Jim O'Leary
The Public Service Benchmarking Body (PSBB) report will have been greeted with widespread relief across the private sector and, one sup- poses, in the Department of Finance.
From the taxpayer's perspective, the pay increases recommended in the report, averaging 0.3 per cent across the 109 grades examined, at a cost of just €50 million annually, represent an outcome close to the best that might have been imagined. The corresponding figures attaching to the 2002 report were 8.9 per cent and €1.2 billion.
The ATM machine that was benchmarking is, it seems, at least temporarily out of service.
The PSBB argues that the modest outcome of this latest round should not have been unexpected, on grounds that the previous exercise, the first of its type, raised public service salaries to an appropriate level relative to the private sector, and that nothing had happened in the intervening five years to adversely affect the public sector's relative position.
The 2002 report was published against the background of a strong, though entirely misplaced, perception that rates of pay in the public service had fallen well behind the private sector, and correspondingly aggressive expectations on the part of public service unions, reflected most starkly in the 30 per cent pay rise sought by teachers.
In the intervening period the myth that public servants are at a pay disadvantage relative to the private sector has been exorcised and replaced by the realisation that, in general, though with some important exceptions, the opposite is true and has been true for as far back in time as the data required to properly analyse the issue go.
Research carried out by myself and colleagues at NUI Maynooth, published by the ESRI in 2004, concluded that on a like-for-like basis, public service workers were on average paid 13 per cent more than their private sector counterparts in 2001, a margin that we found had not significantly changed over the previous seven years.
Interestingly, this week's PSBB report summarises the findings of a similar research exercise carried out on its behalf, one of which is that the average public sector premium is in the range of 8-10 per cent.
A big complaint directed at the PSBB's first report related to its extraordinary opacity. The second report does a little better on this score, but still falls well short of being a model of transparency.
True, in the case of the 15 grades to whom pay increases are awarded, the report explicitly states that remuneration is below that of private sector comparators. But the formula of words used to describe the position of the other 94 grades is not very revealing: what we are told is that none of the salaries concerned is below those of comparable private sector jobs.
However, one can infer with virtual certainty that in many, if not most of these cases, the public sector salaries are in fact above those of the private sector comparators. I suspect that this is the case even before allowance is made for the superior pension provision that public servants enjoy. How could it be otherwise, given the aforementioned research findings?
A curious aspect of the PSBB's methodology is that it defines private sector earnings to include bonus payments. The proximate effect of this, of course, is to boost (in some cases substantially) the benchmark against which rates of public service pay are being assessed.
To the extent that bonus payments in the private sector reflect individual effort, this methodology effectively rewards public servants for the performance of private sector workers. That would seem perverse.
At the same time, the PSBB refuses to engage with the proposal to introduce a system of performance-related payments for the public service grades within its remit, on grounds that this would be outside the scope of benchmarking. There would appear to be a fundamental inconsistency here as well as an evasion of an important policy issue. If public servants are to benefit from performance-related pay (and why not?), it should be their performance and not the performance of others that counts.
Public service unions will be happy with the PSBB's position on performance-related pay, but will obviously be disappointed with the more important elements of the report - the pay awards or lack of them. The main nursing unions are likely to feel especially aggrieved. Most nursing grades drew a blank in terms of general pay increases.
It is possible that the trade unions, having been supportive of the benchmarking system, will now turn against it, and if they do it is likely that the search for a replacement will begin. There is an obvious alternative. It is separately to determine pay for the different sectors (health, teachers, Army, gardaí etc) and set up separate pay review bodies accordingly, as is done in the UK, for example. The principles of basing the pay recommendations on comparisons with the private sector and outlawing the old relativity claims could still be applied, arguably with greater force. Such a system would also have the merit of allowing complex occupation, or sector-specific, issues to be explored fully.
Jim O'Leary is a senior fellow of the department of economics at NUI-Maynooth. He resigned from the benchmarking body in April 2002 before publication of its first report.