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Public sector pay deal looks like a fair compromise

On the Government side, the agreement will not break the bank and is broadly in line with what is happening in the private sector

Minister for Public Expenditure Paschal Donohoe comments on the Public Sector Pay Deal in the Courtyard at Government Buildings. Photograph: Sam Boal/RollingNews.ie

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John FitzGerald
Fri Feb 2 2024 - 06:00

The draft public sector pay deal, agreed by union and Government negotiators last week, looks like a fair compromise between the interests of the two parties to the talks.

On the Government side, the deal will not break the bank and, even more important, it is unlikely to have knock-on effects elsewhere in the economy, resulting in broadly similar increases in wage rates in the public and the private sectors.

For the unions, the pay increase is likely to exceed expected inflation by a significant margin, in contrast to what all workers experienced over the last two years. Thus the deal is likely to leave public sector workers better off by the end of the agreement.

The significant upfront increase reflects the fact that inflation is still quite high, though on a downward trajectory. While the terms of the draft pay agreement are generally the same across the public sector as a whole, there is some limited scope for “local bargaining”. Overall, there should be enough to get the agreement over the line.

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There are three strategic issues that need to be considered in setting public sector pay rates over an extended period. Firstly, the ability of the Government to pay – this was a serious constraint during the bailout years.

Secondly, public sector pay rates should be similar to pay rates for people in the private sector with equivalent qualifications and experience. That’s to ensure fairness, and a balanced labour market. Thirdly, the public service needs to pay the right rate for the job, to ensure it can recruit and retain staff.

Pay rates in particular areas may need to change in the future, to ensure public sector pay remains competitive with private sector jobs. If it’s hard to recruit and retain sailors for the Naval Service, or to attract IT specialists to public sector jobs, their terms and conditions may need to improve faster than for other public servants.

Likewise, some particularly challenging and hard-to-fill roles, for example in mental health services, may need a premium over equivalent grades elsewhere in the public sector.

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The risk is that providing extra flexibility in local bargaining to enable such shifts in relative pay could open a Pandora’s box. As happened in the past, that could lead to major strife, or to leapfrog claims.

However, over the course of the new agreement, both sides need to consider how changes in the wider labour market, and the public sector’s need for workers with specific skills, can best be accommodated.

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Future pay deals should also accommodate the changes in the skills the public sector will need. An ageing population will need more doctors, nurses and care workers. Increased use of AI may substitute for some routine clerical tasks, while increasing the demand for people with data science skills.

There have been predictable rumblings from some quarters that Irish public sector workers are overpaid. Overall, this is not the case, although results are more nuanced for particular categories.

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Lower-paid public servants do a bit better than their private sector counterparts, while higher-paid staff fare less well. France shows similar results. While in Germany, women benefit more than men from holding a public sector job, in Ireland this gender advantage is only really significant for lower-paid public sector roles.

As often happens, the view that public sector workers in Ireland are better paid than private sector equivalents reflects a historic position, not today’s reality.

In the Celtic Tiger years, the public sector did exceptionally well. A 2009 Economic and Social Research Institute (ESRI) study, by Elish Kelly, Seamus McGuinness and Philip O’Connell, examined the difference in public sector pay taking account of differences in qualifications and experience.

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This showed that the public sector wage premium, relative to the private sector, had risen from 8 per cent in 2003 to 21 per cent in 2006. With the financial crisis at its height, the Government of the day acted on this evidence and cut public sector pay by a large amount, and maintained the tough stance throughout the bailout years.

A subsequent study by the Central Statistics Office (CSO) showed that by 2018, on average public sector pay was in line with that in the private sector, but that lower-paid workers did significantly better than their private sector counterparts, while higher-paid public servants suffered a significant wage penalty.

Since 2018, public service pay rates have risen slightly less rapidly than in the private sector, so that the position of broad parity between the public and the private sector may have slightly eroded in the meantime. In that light, the current pay deal appears a reasonable one.

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