Luas pay rises may set off scramble for limited resources

Pay increases are back on the table, so please form a disorderly queue. The deal done with Luas workers – which experts say may or may not be accepted – is the clearest signal yet of the building pressure. No sooner was the ink dry on these proposals than Iarnród Éireann unions were hailing the increases for Luas employees of between 8 and 18 per cent over three years as a new “industry norm”.

Talk of record economic growth and soaring tax revenues are raising expectations in both the public and private sector.

There are two problems here. The first is that wage increases across the board of, say, 5 per cent plus will be unaffordable for most employers, not least the biggest employer of all, the State.

The second is that those with the most economic power will try to squeeze the biggest increases for themselves. At risk in this process are those who lost most during the bust: younger employees and the almost one in five young people who is on the dole queue.

Perhaps it is no surprise that with all sides in the election campaign agreeing that the “financial emergency” was over, everyone wants to go back to what they see as “ normality”.

In the private sector it will, to some extent, be the law of the jungle: if you work in a high demand area of technology or are a quantity surveyor, you are going to do better than the average. But there are few enough companies that will be able to afford 5 per cent plus annual pay rises; 2-3 per cent is more likely to be the norm.

In the public sector, meanwhile, the outcome will be driven by negotiation. We are already seeing how the Luas deal will spark knock-on claims in the State transport network, while pay demands are also building in other commercial State companies.

Meanwhile, Kieran Mulvey, head of the Workplace Relations Commission, has warned that pressure is set to build in the wider public sector, even though the Lansdowne Road agreement – the successor to the Haddington Road agreement – technically runs until 2018.

His view is that there is a “ticking time bomb” which could go off some time later this year. If public servants feel that others are doing better, then they will be back looking for more.

The problem is that there is now no way of agreeing what pay should be in the public sector. We had the old benchmarking process – where public and private pay were compared – and then the crisis-era cuts. The Lansdowne Road agreement was a sticking plaster to restore some cuts ahead of the general election.

Limited resources

Nobody has agreed what basis should be used to set public pay in future or how this should be fitted in with improvements in services to the public. So the risk is the law of the jungle will apply. Train drivers stop the trains in the hope of a hike. What next? Do ESB workers turn the lights out? Will gardaí stop patrolling the streets? How would a minority government cope with all this?

And while cuts were agreed during the crisis, most public servants will find themselves €1,000 better off this year; meanwhile, the old bandwagon of annual increments – semi-automatic increases based on seniority – is returning. The limited resources available to boost public services could quickly be eaten up by pay awards.

Left behind in the rush – in the public and private sector – could well be the younger employees. As market power asserts itself in the private sector and union power in the public sector, there is a risk that they will get elbowed towards the back of the queue. The “insiders” in the jobs market will act to protect themselves.

Younger employees were among the biggest losers during the crisis. Youth unemployment has fallen, but remains just less than 19 per cent. Significant numbers in that age group and older remain on short-term contracts or doing some kind of casual work. This may suit some – the more talented who are naturally mobile – but it doesn’t work for many.

To make things worse, this younger group of “precariats” is very exposed to one of the few areas of the economy where inflation has been rampant: rent.

New recruits

In the public service, all suffered in recent years, but younger employees suffered most. New recruits after 2013 have joined under a much changed, though still generous, pension scheme. Meanwhile, pay rates for new employees were cut in some sectors – such as teaching – meaning new employees were being paid less for doing the same work and, perhaps more seriously, could never catch up.

Some changes to these arrangements have been negotiated but, in areas such as teaching, significant numbers of the under-35s struggle to get permanent work. In the negotiations to come, where will the interest of these employees be ranked when compared with their more established and unionised colleagues?

The scramble for resources to come will not be pretty. With unemployment still at 9 per cent, it is important that too significant a trade-off does not emerge between higher earnings for those in work and increasing employment, including in the public sector.

For private industry, competitiveness is still an issue. We are moving back to an era when wages can – and should – rise but to suggest that, in a world of zero inflation, wages should rise across the board at 5 per cent plus per annum is quite simply bonkers.