‘Striking the balance on public sector pay is never easy….’
The publication this week of the Public Sector Pay Commission has triggered another round of comment, claim and counter claim on the best way forward. This article by MKC’s Director of Strategy and Public Policy that first appeared in the Irish Independent before Christmas teases out the balance to be struck between public and private sector workers and the mistakes to be avoided.
There was no-one in Skiberreen at National Digital Week 2016 demanding “pay restoration” or a return to Social Partnership. They wouldn’t even think about it. For one, the organisers all seemed to be in their mid-twenties so for all their adult life all they’ve known is the crash caused by a toxic mix of poor domestic policy decisions and an international financial crisis. Second, with support from industry heavy weights like Sean O’Driscoll from Glen Dimplex and Ronan Harris from Google, Gráinne and Callum and their community based team are trying and succeeding in turning Skiberreen and their Ludgate Hub in to a start-up cluster for the region. It was, and is, inspiring stuff.
I mention Skiberreen – not because it is unique, though it is a superb case study of a community pulling together – but because I had the dubious honour of being the wet blanket at their conference last Friday. I was asked to talk about public policy and how enterprise policy changed from the pre-crash era to one where nearly two hundred thousand people are back at work and our economy is growing strongly again.
The main point of my presentation was that for a small open economy like Ireland’s to succeed we have to sell goods and services overseas in a viciously competitive global marketplace. And for that to be done well we need to get all our policy decisions correct – budgetary, taxation, trade and wages. If we get those wrong, the crash has shown us this, then all the best community initiatives – such as the Ludgate Hub – will get blown away as budgets dry up and banks grow more nervous.
And on all of these vital policy areas you can see the pressure building. Demands for more and more public spending, resistance to reducing the tax burden on those on average wages paying 50% marginal rates, trade deals being voted down in our Parliament and the growing demand for accelerated ‘pay restoration’ by public sector unions and whisper it, even a return to Social Partnership.
On the last point, it’s hard to believe it but Social Partnership hasn’t gone away you know. The discredited pay model, integral to the toxic policy mix that broke our country, has started to pick up a few public backers as a result of the industrial unrest with the Gardai and one of the three teacher unions. And as I read the calls for an accelerated new pay deal or calls for a ‘new’ or ‘updated’ version of Social Partnership I can’t help but recall an old episode of The Simpsons.
It’s the one where Homer gets stuck in a tar pit and starts to sink. Rejecting offers of help Homer insists he can struggle his way out. He then proposes to ‘reach in and pull my legs out’ and then as he sinks further proposes to ‘pull my arms out with my face’. Needless to say, it doesn’t end well.
Demanding accelerated ‘pay restoration’ or proposing a return to Social Partnership in the face of pay disputes involving less than 8% of public sector workers and when the international marketplace that we rely on for our trading success is in a state of flux is as sensible as trying to escape from a tar pit by attempting to pull yourself up by the ankles. Tackling one problem by creating a multiplicity of new ones does not make for good public policy.
But that is the very space we are at risk of drifting in to now. The sectoral interests are mobilising and the government is a minority administration relying on cross chamber support to survive. Signals from government about convening earlier talks on a new pay deal may be a sign of the precarious nature of the government’s position or it may be a tactic to allow the temperature to cool a little. If either explanation leads to unsustainable pay hikes just as we’re emerging from eight years of pain, then it will be a very bad day for all involved.
It is worth considering some relevant facts when engaging in this type of debate. According to the CSO, average weekly wages in both the public and private sector are now back at the levels they were in a pre-crash 2008. Now, average weekly wages can only tell you so much about what is going on in a labour market but public sector average weekly earnings in 2015 were €915, the private sector €639 – both within a percentage point or so of levels in 2008. The point is to recognise that wages have recovered to a point and there is potential for further growth. But only – only – if the economy continues to grow.
A final thought about those average wages. It should be noted that 290,000 private sector workers lost their jobs involuntarily between Q1 2008 and Q3 2012. Off the back of a directly linked collapse in our public finances the public sector faced pay cuts, pension levies and reduced numbers by 45,000 through early retirement and attrition up to Q3 2014. This is the practical human cost of getting enterprise, trade, tax, and wages policies wrong. Everyone loses. It’s not public versus private or social services versus tax rates; everyone loses if any group jumps ahead in the queue and the correct policies are abandoned.
If we get the policy mix right then there is a chance of pay restoration and income growth for both public and private sector workers. If we can keep people in work and continue to improve our productivity then our social services can build on a steady stream of investment and not the stop/start funding that goes with boom and bust economic policies.
That simple fact gets forgotten again and again and again. We have the trade implications of Brexit to deal with, we have a novice new President in the US, key economic indicators are showing signs of softening and we have personal tax rates that still crucify workers earning the average industrial wage. The country got in to the worst economic and budgetary crisis in its history with a toxic mix of enterprise policies while abdicating public pay policy to a body that bypassed the elected representatives of the people and recommended unsustainable pay increases.
Maybe as we emerge from the darkest of crises we can for once learn from our history rather than condemn ourselves to repeat it. If we can do that then all workers should benefit as well as those relying on public services. And Gráinne, Callum and the community behind Skibbereen’s start-up ambitions can see their goals realised rather than sunk by policy choices made in the coming days, weeks and months.