The Pay Squeeze Part 1:In the first of a three-part series, Industry Correspondent Martin Wallassesses the Government's chances of cutting public-sector pay without causing an industrial relations crisis
WITH THE Budget still more than two months away and the Government’s deliberations on its spending plans for next year only now getting underway in earnest, the battle lines are already being drawn over public sector pay.
And in the private sector, where the extent of pay cuts is a matter of some debate among academics and industrial relations specialists, senior economists are forecasting that reductions of 5 to 10 per cent over a three-year period will be needed to tackle unemployment. All in all, the last few days has seen the issue of pay move back towards the top of the agenda.
In a speech at the Institute of Public Administration (IPA) on Wednesday, the Taoiseach, Brian Cowen, signalled that further pay cuts for more than 300,000 civil and public servants could be on the agenda.
It was not so much what Cowen said in his speech that raised eyebrows but rather what he did not say. The Taoiseach argued that the Government had to “look at all of the options that would minimise the impact on public services and public service jobs of unavoidable spending reductions”.
However, if public services and jobs are to be protected in the forthcoming cutbacks, the main target left exposed would be the Government’s €20 billion pay and pension bill.
When pressed by reporters after his speech, Cowen did nothing to dampen speculation as to the Government’s intention on public service pay. He said that nothing was excluded from the Cabinet’s deliberations.
The country’s 300,000-plus civil and public servants have already seen their incomes cut by around 7 per cent on average because of the pension levy introduced by the Government in February. However, Cowen’s comments at the IPA were not the first occasion that a Cabinet minister had raised the spectre of new pay cuts. Late last month, the Minister for Health, Mary Harney, warned that health sector staff could face pay reductions next year if the Health Service Executive (HSE) did not secure reductions in employment levels along the lines proposed by the recent McCarthy report.
The Irish Times also revealed at the beginning of September that the Department of Finance, in its submission to a review of top-level pay in the public sector, which is currently underway, had argued that a cap or cut in pay at the top level of the public sector could send a positive signal to the international investment community.
THE REVIEW BODY examining top-level pay, including that of ministers, judges and top civil servants, was specifically asked by the Minister for Finance, Brian Lenihan, to benchmark remuneration in Ireland against that in other EU countries of comparable scale.
In its submission, the Department of Finance said that pay developments for all grades of staff must be seen in the context of the need to secure significant savings in current expenditure over the coming years. It said that public sector pay accounted for one-third of total Government spending, and pay developments at the higher levels could “generate important demonstration effects”.
In dealing with pay in the public sector, industrial relations practitioners tend to differentiate between core pay (or basic salary) and variable pay (which comprises the plethora of allowances, premium rates and overtime payments that can boost basic earnings).
While it was unclear as to whether Harney, or indeed Cowen, were hinting at reductions in core pay, the HSE, for example, has made no secret that it wants cuts in the €1.1 billion it pays out in variable pay.
On a political level, cuts in variable pay could be problematic, as these would fall disproportionately on particular groups, such as gardaí, nurses and prison officers, who provide round-the-clock services, rather than on those civil servants who tend to work more regular hours.
On Tuesday, unions and organisations representing frontline public servants announced a campaign of opposition to any cuts in pay or allowances. Gardaí and Defence Forces personnel cannot go on strike, but the general secretary of the Irish Nurses Organisation, Liam Doran, indicated that such action could be considered by other groups.
However, any move on core pay across the public sector would also cause industrial relations unease and would probably put the final nail in the coffin of the current social partnership process, which has been unable to generate an agreed economic recovery programme over the last six months or so.
The largest public sector union, Impact, has already publicly warned that members would “deal swiftly and decisively” in the event of any threat to core pay and conditions.
The Labour Party leader, Eamon Gilmore, yesterday re-stated his party’s proposals for a cap on top-level public sector salaries. But capping or cutting top-level pay will not generate large sums, as the number of staff affected is too small.
Figures issued last year (before the pension levy) by the Department of Finance showed that there were 37 officials in the Civil Service who earned in excess of €200,000, while there were more than 25,000 civil servants who were paid between €20,000 and €60,000 per year. This pattern is replicated throughout the broader public service, with small numbers receiving very large payments and the bulk of staff somewhere in the middle.
In reality, if the Government wanted to generate significant savings on the pay bill, it would have to make cuts among the middle earners, where the larger numbers are. However, this would bring into the net the average teacher, garda and nurse, with all the political consequences which would flow from that.
At the IPA conference, economist Colm McCarthy called for a new benchmarking process for public servants which would be free to recommend pay cuts where necessary.
John Fitzgerald, of the Economic and Social Research Institute, also suggested that there should be further cuts in public sector pay but said that this could be politically difficult to achieve until the picture in the private sector was clearer. He said that there were major problems with the Central Statistics Office (CSO) figures on pay and that it was difficult to know what precisely was going on in the private sector. For despite a general perception that pay cuts are widespread in the private sector, much of the published data does not back this up. Different studies – albeit of different types of companies – have produced divergent pictures, while the CSO figures do not yet cover the situation in the construction and services sector.
According to a CSO report issued in early August, hourly earnings in the industrial sector, including irregular bonuses, rose by 5.9 per cent, from €20.82 per hour to €22.05 per hour, in the year to the first quarter of 2009.
It said that, in the financial sector, hourly earnings, including irregular bonuses, fell by 11.1 per cent, but that when the irregular bonuses were excluded, hourly earnings rose by 5.4 per cent.
Earlier this year a survey carried out by employers’ group Ibec found that just 10 per cent of companies had cut pay for production workers in the previous six months. In fact, the study found that more companies had actually increased pay rates.
BOTH OF THESE reports tend to support the view held by the specialist publication, Industrial Relations News, which carefully tracks pay developments, that pay freezes rather than cuts in basic pay have predominated so far this year. The magazine’s editor, Brian Sheehan, says that close to 100 companies had paid the first phase of the pay deal agreed between the social partners a year ago.
However, Mark Fielding, of the Irish Small and Medium Enterprises Association (Isme), which represents mainly non-unionised companies, says that a survey carried out by Isme found that 45 per cent of member’s firms had introduced a pay cut since the start of the year. The average size of the reduction was 13 per cent. Fielding says that 49 per cent of member firms surveyed have put in place a pay freeze.
Dr Aedin Doris, labour economist at NUI Maynooth, posted a question on the Irish economy website following the publication of the CSO data in August: “Where are the wage cuts?” she asked.
Dr Doris said that the CSO data, which is the best available, appears to show that pay cuts are not happening on a wide scale, despite anecdotal evidence to the contrary. However, she says that this does not mean that wage cuts are not happening. She says that even taking into account the CSO data, it is possible that wage cuts are taking place on an individual basis, as the official figures deal with averages.
Yesterday, NCB Stockbrokers economist Brian Devine said that the CSO first-quarter data had left him wondering whether everybody has been “lying about their earnings”. He said that he had a few caveats about the data: only 15 per cent of the workforce is captured in the earnings data; there is likely to be a delay in pay cuts feeding through to the earnings data figures, as many pay cuts were apparently implemented in March/April; and there could also be measurement error in the earnings data.
“Nonetheless the lack of deflation in the core CPI measure hints at smaller-than-expected wage cuts in the private sector,” he said.
Further CSO data later in the year may clarify the position. However, if it emerges that private sector pay cuts are not as widespread as anticipated, it will make it all the more difficult for the Government to introduce any additional measures of this type for public servants.