Public sector not 'bloated' but it is relatively well-paid

ECONOMICS: MUCH OF the debate on the Croke Park agreement focuses on pay. Many fair-minded people are confused on the issue: are public sector workers better paid than their counterparts in the private sector and their public employee counterparts in peer countries?

There is good reason for confusion – figures comparing public and private sector pay are patchy over time and international comparisons are not as straightforward as they should be. That said, there is a lot of information available.

Start with the broadest international comparison. Last year, the slice of the national pie going to public employees – as measured by gross domestic product – was 11 per cent in the EU (10.6 per cent in the euro area). In Ireland, it was 12 per cent.

As measured by gross national product, often considered a better indicator for this economy, the share stood at 15 per cent. By that measure, it was the third-highest among the 27 member countries.

So how do average salaries compare? There are no published figures but estimates can be arrived at by dividing the overall public pay bill by the numbers employed in the sector. For the latter, the Organisation for Economic Co-operation and Development provides figures. In Ireland, the public sector accounted for 15 per cent of total employment – almost exactly the (32-country) average, according to the most recent data.

The frequently levelled accusation that the Irish public sector is “bloated” is thus wrong. But if numbers employed are average and the total pay bill is high, the only conclusion it is possible to arrive at is that average public pay in 2011 remained high compared to other European countries.

All figures discussed so far are annual. In assessing pay, hourly income is also relevant. OECD 2010 figures (the most recent) show that the average hours worked by public sector employees in Ireland were the second lowest out of the 33 countries.

A big total pay bill, average numbers of public workers and low annual hours worked all point to a very good deal for Irish public sector employees, even after the significant pay reductions introduced in 2009.

At a more granular level, the OECD* compares cash earnings (adjusted for price levels) of different categories of public servants in different countries.

In 2009, even after pay cuts, the pay of top and third-tier Irish civil servants remained well above OECD averages, but second and fourth-tier management levels were in line with averages. Statisticians, economists and “executive secretaries” remained above average in 2009, while lower-ranked secretaries were below.

The latest OECD figures for the health and education sectors are for 2008. Irish medical “specialists” stood head and shoulders above their counterparts elsewhere, nurses were the fourth-highest earners (out of 19 countries) and teachers were the fifth-highest earners (out of 32 countries). The pay cuts in 2009 will have brought all three professions down the rankings, but they are very likely to remain better paid than their peers internationally.

Such comparisons are one way of assessing public sector pay. Another is to compare it with pay in the private sector at home.

Average pay is 50 per cent higher in the public sector, according to Central Statistics Office data. This is usually attributed to higher skills levels in the public sector. If that were true, peer countries would also have significant differentials. They don’t.

The most comprehensive cross-county study** was published late last year. Of 10 euro area countries surveyed, public sector pay was lower that in the private sector in France, Germany and Belgium. Ireland, along with Greece, Spain, Portugal and others, was among the countries where the public sector enjoyed a pay premium.

Also relevant is how that premium evolved during the bubble. Because the current data series only goes back to 2008, it is not as clear-cut as it might be, but the definitive analysis*** of the available data was done by economists at the ESRI in late 2008. They found that, between 2003 and 2006, the public pay premium grew “dramatically”.

The evidence overwhelmingly says the public sector saw bigger gains during the boom and remains better paid than private sector workers or foreign counterparts.

*http://iti.ms/QQwjzs

**http://iti.ms/UOd08f

***http://iti.ms/QQvKWh