HEAD TO HEAD:Ibec's Turlough argues there should be a public sector pay freeze, while Impact's Peter McLoone argues against.
YES - The public sector cannot be insulated from market forces and the private sector should no longer have to fund public-service pay growth through the loss of jobs, writes Turlough O'Sullivan.
THE MARKET for labour is no different to other goods - when demand for labour goes up, the price increases. Increased demand for labour has resulted in strong wage growth in Ireland in recent years and all workers have benefited handsomely.
The downside is that Irish wage rates have risen considerably faster than those in the countries with which we trade, resulting in a loss of competitiveness.
The Irish labour market has deteriorated rapidly in recent months with redundancies up 30 per cent in the last 12 months and the Live Register up by 19,000 in June, the highest monthly increase ever. Public sector workers are completely insulated from these market forces, including the prospect of redundancy.
The report of the Public Service Benchmarking Body, published in January, examined remuneration for 109 different grades of public sector employees and recommended that a total of 15 grades should get some increase. In effect, the report confirmed the view of many that average remuneration levels in the public sector had moved far ahead of those in the private sector.
The recent turmoil in international financial markets has played havoc with pensions and investments. Private-sector employees have seen the value of their retirement savings dwindle while many businesses face the prospect of much higher funding costs if they are to protect defined-benefit pension schemes.
The public sector remains completely immune to these difficulties. The value of public sector pensions has increased sharply in the past six months alone and now stands at about 25 per cent of salary equivalent greater than the value of pensions available to private-sector workers.
The benchmarking report went only a little way towards redressing this imbalance by apportioning a 12 per cent pay equivalent premium to public-sector pensions in its analysis. If public-service pensions were funded in the normal way, and not paid from Revenue, it would put the problem in stark terms.
Many are not aware that public servants are guaranteed pensions based on the ongoing salary of the job they held. Major reform of public-sector pensions is required in order to ensure equity, but also to address a potential crisis in the public finances in the not too distant future.
The public sector pay and pensions bill has increased by 65 per cent since 2002 and is forecast at almost €20 billion for 2008, accounting for nearly 40 per cent of total public current expenditure.
All of the income and corporation tax collected by the exchequer this year will be used to finance the public-sector pay bill.
Every one per cent increase in pay for the public sector costs the public purse in the region of €200 million annually. At a time when the Government has announced a measured response to the growing hole in the public finances by curtailing expenditure whilst maintaining productive investment, a public-sector pay pause presents an equitable and justifiable approach as part of a series of measures to managing the public finances.
This is in addition to the welcome announcement by the Government this week that public-sector bodies (other than health and education) will have to reduce their payroll bill by three per cent by the end of 2009. Annual increments are often overlooked when discussing public-sector pay trends. Employees not at the top of their pay scales receive an annual increment of at least 1,000 in addition to any increase agreed through social partnership. For example in 2007, an executive officer in the Civil Service with two years' service would have received an annual increment of €1,632 or 5 per cent of salary in addition to the Towards 2016 increase of 4 per cent, giving a total salary increase of 9 per cent.
Ibec has always recognised the contribution made by Ireland's high-quality public service to the unprecedented socio-economic progress that this country has made in the past 15 years. We also believe that public-service workers have been well-rewarded for their efforts. In a small, open economy, where all our national income is dependent on our ability to successfully trade internationally, it is unsustainable that public-sector pay should lead the private sector. In more recent years, remuneration in the public sector has exceeded that in the private sector and a correction is now required. We accept that some public-sector workers are on relatively low pay. However, the private sector is no longer willing to pay for public-sector pay growth through the loss of jobs and businesses. Social partnership must deliver, by way of an agreed pay pause in the public sector, the correction which market forces is already imposing on the private sector. Furthermore, in addition to benchmarking pay of public service workers, in future, staffing levels and organisation structures should also be compared with the private sector.
• Turlough O'Sullivan is director general of Ibec
NO- The downturn that has hit Ireland's public finances has not been caused by public spending - many in the public sector are low-paid workers who never shared in the champagne lifestyle of the Celtic Tiger, writes Peter McLoone.
FREEZING PUBLIC service pay is neither necessary nor acceptable. It wouldn't be sensible either, because it would effectively mean abandoning social partnership just when its proven capacity for solving problems and delivering stability is needed most.
Why unnecessary? Because a pay freeze cannot solve our economic and budgetary problems, chiefly because the public service pay bill is not causing them. Take health for example. The HSE cuts are being implemented to deal with a projected €3 million shortfall caused, not by pay or staffing, but by increased expenditure on medical cards, drugs and hospital treatments.
Itis a similar story at the macro level. No sensible observer argues that the global downturn that has hit Ireland's public finances has been caused by public spending. By almost universal agreement, the main culprits are international, private-sector recklessness in the banking and housing sectors and international, private-sector profiteering, which increases commodity and fuel prices while driving share prices down.
Despite the ill-informed criticisms of public-service value for money, the recent OECD report into Ireland's public services debunks the myth that pay and employment levels are out of control. Describing an Irish public service that delivers high-quality services at a relatively low price, it found that, in comparison to other OECD countries, Ireland has a public sector that is relatively small given the size of its economy and labour force. The OECD added that increased public spending in recent years has simply reflected a need to play catch up from historically low levels. A pay freeze is not acceptable either. Public-service pay is rising at a slower rate than incomes in most parts of the private sector. The most recent available CSO figures show average public sector pay up 3.6 per cent in the year to December 2007, compared to average earnings increases of 4.1 per cent.
Average earnings rose even faster in the financial sector (6.1 per cent) and private industry (4.4 per cent). And none of these figures take account of the fact that, on average, public servants are more qualified and more likely to be in professional and skilled technical positions than the average worker.
And, while itis impossible to avoid mentioning the "B" word in this debate, itis now over three years since any public servant received a benchmarking payment. The second benchmarking report recommended increases for just a handful. In any case, average public-service pay figures hide a very wide range of salaries, many of them very low.
For instance, there are over 40,000 public-service clerical workers, not to mention schoolroom special needs assistants, who start work on a salary of €23,000 a year, which rises to less than €39,000 after 14 long years. Hardly the cushy, feather-bedded existence we keep hearing about.
Others have it harder still. For instance, my union, Impact, has discovered hundreds of cases of school secretaries and caretakers being paid around at, or even below, the national minimum wage. The same goes for thousands of care workers and community sector staff who spend their working lives at the very front of the frontline helping the homeless, unemployed youngsters, people with disabilities, disadvantaged kids, people with addictions, and crime victims.
The captains of industry, stockbrokers, analysts and newspaper columnists behind the calls for a pay freeze might struggle to guess the price of a loaf of bread or a litre of milk. But these hard-working public servants are struggling every day to meet soaring bills in supermarkets and garage forecourts, to say nothing of rising mortgage costs.
They didn't share in the champagne lifestyle of the celtic tiger years. Why should they now shoulder all the burden of an economic slowdown they did not create?
I believe that the Government and most employers also understand that Ibec's ill-considered call for a pay freeze would scupper social partnership, the only instrument that has been capable of delivering agreed, moderate pay increases, coupled with effective social solidarity, in times of economic difficulty.
Social partnership is effectively dead in the water if we fail to agree a second phase of Towards 2016. And itis simply not credible to believe we can reach agreement on a deal that includes a pay freeze. Union members, quite understandably, would not vote for it. And frankly, no trade union leader, public or private, would recommend that they did.
Even from an employer's point of view, this idea is a blind alley which, if pursued to its irresponsible conclusion, would replace the stability of social partnership with massive uncertainty. Amid all the gloomy economic news and forecasts, what message would that send to international investors who are looking to the Government, business and workers for signs that Ireland is still a good place to invest and do business?
• Peter McLoone is general secretary of Impact and chairman of Ictu's public services committee