Ireland's annual rate of inflation has remained flat or negative for many months. And with this trend likely to continue, all pay rises constitute real pay increases with a cost, a benefit and a consequence for the economy. In the case of the ESB, some 6,000 staff have been offered a substantial pay rise: 5.5 per cent over 2½ years and a lump-sum payment of €2,750. The latter is worth the equivalent of about four per cent of salary to employees. Last April, ESB staff received a 2 per cent pay rise.
The proposed new terms are the result of a mediation process and raise a number of questions. Will the pay increase be financed from company savings or from productivity gains? Or will the higher cost be recouped through increased charges, which will require ESB customers to pay more for their electricity?
And have the proposed rates set a benchmark for other public sector unions to emulate in pay bargaining and a precedent in the form of a lump-sum payment to compensate for a temporary wage freeze that others may now follow?
In the private sector, average pay is anticipated to rise by about 2.8 per cent this year. The Lansdowne Road agreement for public service employees has, since January last, provided for pay restoration of two per cent.
As against that, a proposed four per cent rise for ESB employees – via the lump-sum payment – on top of the other wage increases, will raise wider concerns about overall price competitiveness in an economy where the outlook remains broadly positive, but which continues to be subject to the vagaries of a range of external factors.
Any loss of competitiveness through higher energy prices could threaten the viability of vulnerable companies that are struggling to recover from recession, with adverse implications for jobs.
Industrial relations is set to be a major challenge for the new government – whenever it is finally formed. There are worrying signs that a wage spiral is developing in the public sector, where legitimate expectations need to be managed to protect economic recovery.