The Economic and Social Research Institute (ESRI) has said public sector pay increases could threaten the economy's competitiveness, and has called for restraint to be exercised in forthcoming national pay talks. The call was made at the presentation of the institute's latest quarterly commentary on the economy, writes Marc Coleman, Economics Editor.
Author Dr Alan Barrett said wage moderation in the public sector would not endanger recruitment as, on a like-for-like basis, public sector pay levels were well ahead of the private sector.
The Quarterly Economic Commentary forecasts growth in Gross Domestic Product (GDP) and Gross National Product (GNP) - alternate measures of yearly production of goods and services in the economy - of 4.7 and 4.8 per cent this year respectively.
But ESRI economist Yvonne McCarthy said the economy's competitiveness had underperformed. "Irish exports performed poorly in 2005. We estimate that exports will have risen by just 2.7 per cent in volume terms over the year and, as this is weaker than global trade growth, Ireland is losing market share on world markets," she said.
Employment growth will slow to 3.2 per cent this year compared with 4.4 per cent in 2005. Although unemployment is forecast to remain at 4.2 per cent for the foreseeable future, the ESRI warned that wage growth in Ireland had outstripped that of our major competitors.
Dr Barrett criticised the impact of the benchmarking process and said that significant wage increases in the public sector would raise taxation and erode competitiveness. "A paper published by the ESRI has shown that, controlling for age, education and gender, public servants were paid on average 13 per cent more than workers in the private sector as of 2001. Since then we've had benchmarking, and increases in public sector pay have exceeded those in the private sector, so wage moderation in the public sector will not endanger the recruitment of good staff," he said.
Talks on agreeing a new social partnership agreement are due to start this week. A special delegate conference of Siptu meets today to discuss a recommendation by the union's leadership to enter those talks.
In a sign that public sector pay levels will impact on the talks, the Irish Bank Officials' Association (IBOA) said yesterday that it would seek a 10 per cent pay increase over two years. IBOA general secretary Larry Broderick said pay in the private sector had fallen "way behind" that of the public service.
Dr Barrett said any new partnership agreement should respond to competitiveness pressures in the economy by allowing the private sector "as much flexibility as possible" in setting rates of wage increases. "Only one third of the labour force is unionised and when the public sector is excluded, this proportion is probably lower. Were it up to me, I wouldn't have a pay agreement for the private sector," he said.
A paper published yesterday by the Irish Congress of Trade Unions (Ictu) warned that between 10,000 and 25,000 Irish jobs were being lost each year to lower cost economies. Ictu economist Paul Sweeney said partnership talks should focus on addressing the growing risks faced by workers from globalisation and that trade union shop stewards also needed to be more accepting of change in the workplace.
An article published alongside the ESRI commentary yesterday warned that the escalation of property prices was undermining competitiveness.
The paper Future Irish Growth: Opportunities, Catalysts and Constraints by Dr Frank Barry of UCD said that structural flaws in the planning and electoral system were contributing to high property prices and acting to undermine the economy by restricting the supply of land and the quality of economic governance.