Jobs-for-life guarantee in public sector is wasteful and wrong

ECONOMICS:THE RECESSION is testing society's cohesion. How budgetary pain is spread is causing resentments, and nowhere more so than between private and public sectors.

It is right and fair to acknowledge that public sector workers – at all income levels – have experienced big reductions in their take-home pay from bubble-era peaks, even if they have retained most of the gains (see chart). A straight pay cut, a pension levy and the effects of the tax hikes that have been suffered by everyone have made many lives very difficult. Those who made spending commitments based on bubble-funded salary levels are now struggling to make ends meet – one of many human costs of the recession and gross fiscal recklessness by governments up to 2008.

Last week the issue of public sector pay was discussed here. It is protected by Croke Park. The second major concession granted under that deal is total job security. There is much discussion about public sector pay but very little about the second concession. Reform in this area is warranted on the grounds of both efficiency and equity.

Start with efficiency. The world changes relentlessly. Economies are always in flux. Jobs are created and destroyed constantly. The notion a government can or should prevent that organic process is absurd. The Nordics long ago recognised this, hence their enlightened labour market mantra – “protect the worker, not the job”.

The Mediterraneans do it the other way around, with predictably disastrous results. In Italy and Spain, as in Ireland, public sector workers are unsackable. But they differ in that the cost of lay-offs and redundancy in the private sector makes doing so prohibitive. The result is that companies hire less than they would otherwise for fear of not being able to downsize in a downturn. Unemployment is thus guaranteed, even in boom times. Spain’s jobless rate never fell below 7 per cent during its dozen years of rapid growth to 2008.

There are many examples of the sclerosis and additional cost in Ireland of the “no lay-off” guarantee given to public workers. When the HSE was established, there were plenty of new hires but no reductions in numbers in the Department of Health and health boards. The net result was higher costs.

Now, as agencies are rationalised and closed, a great deal of time is spent trying to shoehorn workers into positions elsewhere in the public sector. The “cull of quangos” delivers little in savings and efficiency.

The job-for-life guarantee is as inequitable as it is inefficient. If you agree in principle that lay-offs and redundancies are a sad but inevitable fact of life, how can it be argued that one group in society should forever be given 100 per cent protection from that risk, with the cost borne by those who do face being laid off? It is extraordinary that many of those who prioritise equity above all other goals in political life support the maintenance of full job security for one group in society.

Most European countries have traditionally given more rights to public sector workers than their private sector counterparts. But that is changing. It is unsurprising that the countries that are most serious about equality have advanced furthest in ending this form of discrimination.

In informing the debate, a recent study* by Christoph Demmke and Timo Moilanen of the European Institute of Public Administration goes some way to filling the large gap in the literature on comparative public sector reform. Their work shows that the trend is clear: the old job-for-life model is giving away to a protect-the-worker-not-the-job model, and this is happening most rapidly in countries with a more progressive and socially democratic political culture.

Real reform of the public sector is not a one-shot affair. For any organisation to thrive, it must be proactive in seeking opportunities and addressing threats. An important part of creating a culture in which these things happen as a matter of course is creating a fair balance between the rights of employees to security and the rights of employers to manage. Croke Park is anti-progressive – in every sense of that word – in failing to move with the wider trend in public service reform of ending job-for-life guarantees. Meaningful reform of every kind will be infinitely more difficult to achieve until the balance of rights between employees and employers in the sector approximates the generally fair balance that exists in the private sector.

* Status Developments and Government Transformation in the Central Public Administrations of the EU Member States