Government proposals on benchmarking have not addressed recruitment, retention or motivation problems, despite costing €1.1 billion. Can we hope for better? How will the new deal affect the average pay increase and the degree of dispersion around that average?

At the time of writing, the social partners were still inching towards a new partnership deal. Currently trading under the catchy title of "Building, Maintaining and Sharing Economic Development and Progress" (surely there are several words missing here), the new agreement will no doubt contain sections on inflation, housing, social inclusion, infrastructure and much else.

It will also address the issue of pay, provided that employers and trade unions formally endorse last month's Government proposals. These provide for a cumulative increase of 7 per cent (7.2 per cent to be precise) over 18 months in the private sector, and a similar increase, together with the payment in full of the benchmarking awards, in the public sector. What are we to make of these proposals? How will they affect the economy's competitiveness? And how will the taxpayers' interest be served by the public-sector element of the deal?

For the private sector, the proposals envisage an annualised rise of 4.7 per cent. This doesn't hold out the prospect of much by way of a rise in real take-home pay, given trends in inflation and income taxes.

Still, pay increases among our trading partners are running well below this, and the euro is appreciating sharply. So the proposals point to a further erosion of Ireland's cost competitiveness. These observations in themselves do not damn the proposals, however.

Here the key issue is whether the deal will make the situation better or worse. There are two aspects to this: the average pay rise and the degree of dispersion around that average.

Do national wage agreements per se result in private-sector wages, on average, rising more slowly or more quickly than they would otherwise? Do they produce wage rises that are more closely bunched together than they would otherwise be?

The truth is that we don't know the answer to the first question. As for the second, it is almost certain that national agreements do result in less dispersion of wage increases, at least in unionised firms. That, after all, is their purpose. It is also their great weakness, because in plain language what it means is that some firms end up paying less, and others end up paying more than they can afford. That said, there is plenty of scope for dispersion of wage rises under national agreements. For example, firms in trouble can plead inability to pay.

By contrast, unions in some companies will treat the national pay norm as a floor upon which to build additional locally negotiated increases.

Then there are the non-unionised firms which comprise the majority and for many of whom the national pay agreement is irrelevant. Overall, national wage agreements make a good deal less difference to private-sector wage behaviour than the architects of such agreements would like to believe.

The public sector is a different matter. Here workers are not only to receive regular pay increases but also, provided agreement is reached on a public service modernisation programme, the benchmarking awards. These awards span 3 to 25 per cent and average about 9 per cent. For some public servants therefore, rates of pay may rise by a cumulative 34 per cent under the proposed deal. For public servants on average, the proposed rise may be almost 17 per cent.

The cumulative increase proposed for the public sector is precisely the same, at 7.2 per cent, as for the private sector. Although public servants face a six-month pay pause, this simply means they have to wait a little longer for the same rises. But the sting will be taken out of that waiting period by the payment of the first instalment of benchmarking.

What about the proposals on benchmarking? First, the benchmarking awards, as the dogs in the street now know, have not been justified in terms of addressing problems of recruitment, retention or motivation in the public service, or of redressing pay inequities between public servants and their private- sector equivalents.

To that extent, the estimated €1.1 billion direct cost of implementing the benchmarking proposals represents very bad value.

But there is a way the pay awards can be justified. It is by using them as the lever for forcing the pace of change and modernisation. This seems to be the course the Government is embarked on in the current negotiations. So far so good.

But this is not enough. The pay increases granted under the PPF, after all, were supposedly predicated on an agreed change and modernisation agenda, the implementation of which is still being frustrated across a wide front months after the last phase was paid over.

So this time, the deal needs to be different. There are many ways in which this could happen. First, the changes in work practices on which the awards are to be conditional should yield measurable improvements in efficiency or productivity (including enhancements in service) that are commensurate with the relevant awards. Second, the changes in question should be published on a grade-by-grade basis, so that taxpayers know precisely what they are getting in return.

Third, the changes should be implemented and verified before payment is made. History suggests that paying this particular piper before he's played his tune is a poor strategy.

There is at least one other important requirement. The trade unions concerned should give a solemn undertaking, which might be incorporated into labour law, that they will not cite cross-sectoral relativities in support of future wage claims.

If the deal incorporates elements such as these, some value for the taxpayer may yet be extracted from the whole sorry benchmarking episode.

Jim O'Leary is currently lecturing in economics at NUI-Maynooth. He can be contacted at jim.oleary@may.ie