Perfect Example…

A letter in the Irish Times on Monday reiterated a point that some of us have made previously, that away from the superheated rhetoric of a bankrupt state (Colm McCarthy last week, a comment I intend to return to) and economic collapse and in particular wide scale wage cuts across the private sector the actual evidence for the latter is rather minimal.

Indeed, if anything, the evidence points to the opposite.

The letter is written by Gerald Flynn of Align Management Solutions in response to an article at the weekend about public sector wage cuts by Industry Correspondent Martin Wall.

Flynn notes that…

The introduction of wage cuts has not been nearly as extensive as many commentators have been suggesting, and hence their puzzlement that the CSO earnings data do not reflect widespread reductions in basic pay levels (News Feature, September 12th).
A survey of senior people managers conducted over the summer by the Chartered Institute of Personnel and Development (CIPD Ireland) and Deloitte found that one quarter (26 per cent) of respondents had implemented cuts in pay in the previous six months. This is broadly in line with similar findings earlier in the year by Ibec, Mercer and Hay. Of the minority of organisations that had introduced wage cuts, most were in the 5-10 per cent range with about one-third (37 per cent) implementing larger percentage cuts for higher-paid employees. Just over half of the organisations (51 per cent) had introduced a pay freeze while 28 per cent had provided some increases this year.

And he continues…

The pay squeeze has naturally been more noticeable in sectors closely aligned to the property bubble, and national media organisations, from The Irish Times and Independent Newspapers to RTÉ, have implemented significant cuts in their wage rates, fuelling the perception among media personnel that this is a widespread national phenomenon.

I think that’s a crucial point, because it is that dynamic which I believe is reflecting back onto media reporting of this current economic situation. While we’re on that topic I’ve always been a bit amused by how starry eyed the notion of ‘reform’ in employments (particularly, but not exclusively those in the public sector) is, particularly when articulated as a process whereby workers can be moved around or hired and fired almost at will. Having worked in the private sector for most of my working life the reality is rather different. The armchair generals who posit such ideas are often seem overly comfortably removed from the actuality of employment practice and law.

Flynn makes a couple of other pertinent points as well…

Cutting wage rates is a fundamental change in conditions and terms of employment and needs clear management skills to implement effectively while minimising the impact on morale and employee engagement.
Those who have experienced the really severe wage cuts are the 200,000 people who have joined the live register in the past year, and many of the 100,000 who have left the register and secured employment, often at wage rates below what they would previously have earned.

Very true, albeit a sort of appeal to a discourse of ‘well they’re worse off than you so…’, a logic I’ve seen or had used against myself in various employments over the years. Nonetheless retaining employment in the economy is crucial, but it should indeed be recognised that wage cuts are in and of themselves hugely disruptive. To be honest I think his point about morale and employee engagement is one that is absolutely central to this debate and yet is one that has been referenced fleetingly if at all. Anyone whose memory stretches back into the 1980s will know that excessively high levels of taxation married to low levels of public service provision produced a culture that was far from what might be described as ‘engaged’ – and understandably so. Since we appear to be shifting back to that model sooner rather than later it’s not unreasonable to posit that a similar attitude will emerge, or is that re-emerge. And how one can see increased service allied to decreased working conditions in either public or private sectors is beyond me. They’ll use the stick of course, but I wonder how effective that will be in the medium term.
But as interesting is Martin Wall’s original article.

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.

And that agenda includes?

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.

Wall notes that…

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.

There is a further interesting piece of information in the article…

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.

Which is an interesting statement in itself. Those are also the front-line services. That they cost more comes with the territory. How that circle is to be squared will be an education, no doubt.
And it’s not just on the political level that this is problematic…

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.

And there are intrinsic limitations to what can be achieved…

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.

I think we’ve already seen some of those consequences in the shift from FF to Labour of what would appear to be about 5 to 7% of the formers vote. But here is where aspiration rather than reality enters the picture…

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.
A new benchmarking process, which would it is clear benchmark downwards, would have an obvious problem to face.
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.

And…

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.

So, what precisely are they benchmarking against? If the argument is that the public sector cannot be employed at current rates, or must see significant cuts as against private sector wages, then that begs the inevitable question why the comparisons were made (clearly without supporting data) in the past six months and what precisely is the future shape of what, to make any savings at all, would be a much much less well paid (and with rapidly diminishing benefits) public sector area? How is that tenable?

If the idea is that this will act as a spur to the private sector to decrease wages yet further, well, I’m wondering how that will play in the context of further tax increases, increasing mortgages and other charges? There comes a point where this will profoundly impact on economic activity and in particular consumer spending.

The anecdotal remains king in certain sectors, consider the following two paragraphs.

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.

The problem for Fielding is that that does not tally with actual research as distinct from potentially self-selecting surveys by lobby groups…

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”.

Never! That he could suggest such a thing.

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.

Astounding… Although could I propose the small cynical notion that it seems reasonable to suggest that those who are in a position to are increasing wages in order to defray the impact of future tax rises. And as to who they might be? Well, note again…

This is broadly in line with similar findings earlier in the year by Ibec, Mercer and Hay. Of the minority of organisations that had introduced wage cuts, most were in the 5-10 per cent range with about one-third (37 per cent) implementing larger percentage cuts for higher-paid employees. Just over half of the organisations (51 per cent) had introduced a pay freeze while 28 per cent had provided some increases this year.

So of those who are introducing wage cuts only a 1/3 made them greater for those with larger salaries. Clearly the concept of progressive cuts has yet to come home to many many.

The political import of this is clear. If there is a sense that private sector wages are being cut then this can be – and as we have seen has been – used to demand public sector wage cuts.
As Wall notes:

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.

I’d think that evidence has already emerged. And given the upswing in business sentiment over the Summer the idea that private sector wage cuts will be extended seems highly unlikely.

And given that information how does one implement this supposed ‘parity’ between public and private sectors. Let’s assume for the sake of argument that the 7% levy already introduced is seen as going some way to cover the pension issue. What is the next stage? Should one quarter of public sector employees have to take a 5-10% wage cut in line with the private sector? Or should that be spread across the entirety of the public sector? To engage with this on those terms is to see the vacuity of the ‘sharing the pain’ arguments.

It seems to me that there is little doubt that public sector pay will be cut. Partially through expedience, partially through sincere belief that this is the right way forward, partially as an example to others. But if public sector workers find fault in that they will have the [slight] comfort of knowing that the figures [largely] support their complaints.

But, my main problem with this is that yet again a line has been fed to the public on another central issue. Our old friend Michael Casey late of the Central Bank and the IMF pointed to this months back when he noted that:

First, the forecasting (and budgeting) record has been poor. It is hard to remember many occasions in the last 15 years when the Department of Finance came close to an accurate prediction of revenue. Too many statements made by government and other official bodies about the state of the economy and of the banks have been proved wrong. It is not that long ago when we were told that the boom would continue and that the banks had plenty of capital. When these versions of events were not believed by the public and the markets, the stories began to change.

When the Government sought to cajole the unions into a pay freeze they painted a more downbeat picture of the economy. In the event this made no difference to the unions, and social partnership failed its first real test. Then we were told a depressing story about the public finances and the virtual impossibility of borrowing. This was designed to soften up taxpayers for the pain to come. Much of the uncertainty is caused by inconsistent stories designed to manipulate public opinion.

And yet it continues.

The urgency of ‘public sector’ reform and tackling ‘bloated’ public sector wages and conditions was predicated on a private sector where wages were in free-fall. That the reality is otherwise, and in a significant percentage strikingly so, makes this of a piece with rhetoric about our supposed inability to borrow internationally and so forth. And policy has been shaped very deliberately on foot of this discourse.
None of this is to ignore some central facts. There are companies who have been badly impacted by the recession and have been unable to continue without significant changes in work and wage practices. There are others which have been unable to continue full stop. And those who have lost their jobs are in a very difficult position. But each of those is a distinct issue in itself with specific requirements in order to ameliorate them, whereas what appears to be an essentially deceitful trope is being used in order to further a particular ideological viewpoint.