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Nevermind the data, it’s got to be true, it just has to be! Private sector pay cuts. September 30, 2009

Posted by WorldbyStorm in Economy, Irish Politics.
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Well, there I was, standing in a newsagents scanning the front of the Irish Times and what do I see but those comments by John FitzGerald of the ESRI who speaking in perhaps the most unforgiving environment possible at the Small Firms Association’s annual conference questioned whether

…costs had actually come down in the private sector. “In our modelling we felt that wage rates, for example, would fall by 7 per cent over two years in the private sector. However, the latest data suggests that, in spite of what people are saying, costs are not coming down significantly. They are still rising, according to CSO data.”
He said there had been a 7 per cent wage cut in the public sector, and many of his European colleagues were “staggered” this had been accepted by Irish public sector workers.

That’s quite some statement in itself. One of the tropes abroad in this state is that somehow the 7 per cent (which by the way I’m pretty agnostic about) was entirely minimal. That in international terms it is regarded as otherwise is instructive.

But he continues…

“In terms of where we go from here, it will be important that it is seen that here is some reaction from the private sector and so far the data suggests that there has been no significant cuts in labour costs or wage rates in the private sector . . . Until we see the data from the CSO, there cannot really be further cuts in the public sector.

What a turnaround in this debate. For up until now the idea has been that the public sector must follow a private sector that has taken all the pain. But… if there have been ‘no significant cuts…in the private sector’… and for the record I know a number of people who have taken wage cuts so it’s not unknown, merely not anywhere near as pervasive as IBEC or the SFA or indeed the median economic commentariat would like us to think… then that necessitates the private sector absorbing pain.

I’m no more convinced by that particular argument than its opposite. Firstly, and in fairness FitzGerald doesn’t use the word pain, job losses across the private sector are a very real phenomenon (I can point also to the loss of contract workers in the public sector and there are many many of us hanging on in similar positions unsure as to what happens next). But as ever, how this can be ‘applied’ across the society seems difficult to gauge. Unless the argument is that the private sector must now impose reductions in pay in order that more still can be cut from public sector wages.

A race to the bottom indeed.

Anywhow… immediately IBEC sprang to the defence of it’s previous position on this matter…

His claims were refuted by a representative of employers’ group Ibec, who said payroll costs had fallen by 12 or 13 per cent in the private sector, although this was not attributable solely to reductions in pay.
“Pay reductions account for around 2 per cent of falling costs, but we’re seeing it in reduced bonuses, reduced working time and unemployment increase,” he said.

Hmmm… a 12-13 percent fall in payroll costs, but only 2 percent from pay reductions.

I think they might want to shore up that argument a little.

Still, yet more evidence that the arguments that we have seen arrayed have been built on partial and anecdotal evidence. And if they remain so thin on matters such as this which are relatively easily amenable to a degree of objective analysis it does make one wonder about other, less transparent matters.

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1. Crocodile - September 30, 2009

At the most recent time of asking, over 40% of Americans still believed that Saddam Hussein was behind the 9/11 attacks. If the media kept telling them it was true, then it must have been, mustn’t it…?

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2. Tomboktu - September 30, 2009

I heard two people in the supermarket this evening talking about John FitzGerald’s paper/speech. I so wanted to loiter to hear where it went, but pay is a talking point. 9Unfortunately, my unscientific sample of one pair of 20-something blokes is not a scientific sample.)

However, there is another factor at play here. In much of the public sector people haven’t been losing their jobs (significant exceptions are those on short-term contracts across all levels of the education sector and in the health sector), and in some sense the so-called “pension levy” has resulted in the pain being spread across all of the sector. However, in the private sector, redundancies means that some people take all of the pain while others remain where they were. (I’d love to see somebody like Michael Taft do some figures on that to move my knowledge on from the impressionistic stage of understanding.

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3. Proposition Joe - September 30, 2009

Yep, bring on the data, and let the chips fall were they may.

But in the interest of an accurate comparison, lets the drop the oft-quoted “average 7.5% cut” in public sector wages. This conveniently excludes the 3-5% increments paid this year to most public servants, effectively cancelling out half or more of the pension levy loss. For certain grades, there would actually be a net gain over the year.

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4. Crocodile - September 30, 2009

‘ This conveniently excludes the 3-5% increments paid this year to most public servants’
Well, if we’re going treat increments as salary increases, let’s include the doubling of health levies as another pay cut. And the promotion embargo as a de facto pay cut for those who have to ‘act up’ without being paid for it.

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5. WorldbyStorm - September 30, 2009

The problem being Tomboktu how does one measure ‘pain’ in any meaningful way. I saw little enough effort to share my pain in 2004 when I was made redundant from the private sector, and I didn’t expect there to be any. The numbers in education and health losing short term contracts are actually relatively high and will have significant knock-on effects in terms of service provision. Worth remembering that there’s an effective embargo on recruitment so positions lost to retirement etc aren’t being replaced.

Well Prop Joe, we actually can find data on this matter already. I’d suggest you google Michael Taft’s thoughts on the matter.

As regards the 7.5% and increments I note that what data we have in the private sector from data we already have higher sectors have seen wage increases and continuation of bonus payments.

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6. Crocodile - September 30, 2009

Good to see, BTW, that Prof FitzGerald is honest enough to drop the ‘pension levy’ euphemism and call a cut a cut.

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7. alastair - October 1, 2009

if we’re going treat increments as salary increases…

Right, because when you take the salary increase out of an increment you’re left with…?

My personal anecdotal experience on private sector pay cuts – a reduction of income in the area of 30% since budget 2008 (reflected in salary – no fat on this operation) – partially due to a reliance on state-funded quango/NGO client base, but the story’s not that different with those who deal with private sector clients. In my particular industry – reduced working weeks for some, pretty widespread job shedding, goodbye to bonuses, pay freezes, and less obviously – salary reductions (unless people don’t care to advertise salary cuts), broad job insecurity – whether real or imagined, is the order of the day.

In the final analysis, the only real measure of pay cuts will be the income tax figures – shouldn’t be too difficult to quantify the scale of private sector pays cuts once you’ve accounted for the new unemployed figures, the public sector contribution, and the impact of the income tax levy. Until then I’m pretty happy to believe the evidence of my lying eyes – data or no data.

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WorldbyStorm - October 1, 2009

I don’t disagree with much of what you say. There’s absolutely no doubt that certain sectors have been hit very very hard and in those redundancies have been the order of the day, and where not redundancies it’s been the situation you mention. But on an economy wide basis it seems the data points elsewhere. And that means we have to look at the broader economic picture as well.

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8. Crocodile - October 1, 2009

Thought you’d be back, Alastair.
I don’t qualify for any increments myself, but do understand that they’re a mechanism for distributing remuneration over the period of the employee’s career: referring to an ‘increase’ implies something newly agreed or awarded.
I don’t know at first hand what things are like in your industry – but I’m prepared to take your description as true. i won’t be prescribing pay or conditions changes for you. If only it worked the other way round! I can match you anecdote for anecdote, show you a public sector office where morale is shattered, everyone’s working longer and linger weeks for less and less money, there never were any bonuses to lose….
But why bother? If all employees, private and public, do is compare wounds, we never get around to fighting the real battle, against the system that caused the crash, and those who would have us believe that the remedy for that crash is to reinstate that system, with more power than ever.

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alastair - October 2, 2009

a mechanism for distributing remuneration over the period of the employee’s career

And how is that not about salary increases?

I’m in the unusual camp of wearing a private and public sector cap. I’m part of the increments and pension levy game and would certainly consider increments as being salary increases – end of.

I’m also in favour of pay cuts in the public sector I work within – education. Not because of any ‘pain’ ideology – it’s simply that (at least some – demonstrably not all) staff are overpaid, and in a context of reduced revenues, that money should be spent elsewhere. It’s a simple enough judgement call, and one I make no apology for. From my previous experience dealing with Dept Health/ HSE admin, I know that there’s scope for salary cuts there too. I’ll willingly take my pay cut on the public sector side, as I’ve had to on the private sector side. It’s just the fix we’re in.

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WorldbyStorm - October 2, 2009

I’m not sure it’s end of, but I think that you’re largely correct. An increment, and in my employments I too am eligible for them (although I don’t get a pension) operate as a salary increase.

However, since the numbers in the PS are now stable, i.e. with almost no new entrants to it or if anything seeing a decline, incremental pay scales therefore have no effect on ‘increasing’ costs since people retire, new people (assuming they’re replaced which isn’t the case at the moment) go back to the lowest point, etc.

For me the increments end this year (assuming the job lasts that long) and I don’t see another for years until I get two (and not annually consecutive) future Long Service Increments. So that’s a scale with 9 points on it across a lifetime. My wage then is fixed until I retire and the only increases above and beyond that would come from national wage agreements – I’m not holding my breath (not least since I can’t believe my job will last another six months let alone the twenty odd years or so until retirement!).

On the other hand, that’s quite a long time without any increase in wages and under my private sector hat me and a few others once organised within a group of companies precisely because although in IBEC and nominally signed up to partnership none of the national agreements had been implemented. And annual wage increases in the private sector are a fact of life for many many workers, so I wouldn’t be too exercised one way or another about it and if these are done away with then some other mechanism will have to be devised to ensure that if people are on the same grade/position across a lifetime that they’re not on the same wage during that time.

Re: Education, an interesting exercise that – at least at first sight – supports your point about overpayment of some staff – particularly those on higher grades – is to key in on the Guardian educational jobs website “Head of Dept” or Lecturer and then do a comparison on the Xe.com currency exchange website. I know for a fact that the rates in certain institutions, although in fairness UCD seems to be much of a muchness for bog standard lecturing positions, in Ireland are considerably higher than those in the UK and while not entirely like for like that raises significant question marks.

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sonofstan - October 3, 2009

although in fairness UCD seems to be much of a muchness for bog standard lecturing positions

Oh, yes…..
Also, this year, much filling up of teaching hours with graduate students at lower hourly rates.

Incidentally, Garrett Fitz makes a slightly surprising argument for tax over spending cuts in the IT today.

http://www.irishtimes.com/newspaper/opinion/2009/1003/1224255780393.html

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WorldbyStorm - October 3, 2009

sonofstan, you’re entirely right, I was scanning through the jobs and there just aren’t any full time ones, it’s all one or multiple year contracts. Given the increasing demographic pressures on the education system, not to mention that colleges and VECs are seeing massive uptakes from people who’ve left the workforce you’ve got to wonder at how this is going to work.

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9. Mark Waters - October 1, 2009

A naive question perhaps but how do private sector wage cuts help the situation? Shouldn’t we be hoping for an increase in private sector wages in order to increase the tax take? Aren’t there two aspects to balancing the books, 1) cut public spending and 2) increase tax revenue?

The private v public, “share the pain” argument is totally bogus.

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10. Conor McCabe - October 1, 2009

That’s true. It’s the same with the emigration “safety valve” wisdom. Emigration is not a safety valve. All it does is shrink the economy, leading to more job losses. Irish economic history shows us that.

We could also cut NAMA. The Comptroller and Auditor General made it clear in the most recent report that a significant factor in the increase in the national debt has been the year-long build-up in a credit “war chest” for NAMA. We’re talking tens of billions that the government has already borrowed, not one penny of which will be used to save jobs in the economy.

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11. Michael Taft - October 1, 2009

WBS – the data on private sector earnings is patchy and lags considerably. The latest numbers we have is from the CSO’s Earnings and Labour Costs Survey from the 1st quarter this year. It only covers industrial (including utilities and mining) and financial sectors but it is quite detailed – more so than surveys covering Business/Distribution and Public Sector.

I’ve discussed some of the issues previously but here is a brief synopsis:

In the manufacturing sector, hourly earnings increased by 2.7%. However, among clerical and production workers (they make up 75% of the manufacturing employees), hourly earnings fell, while earnings for management/professionals increased by 6.5%.

In the financial sector a similar, though less pronounced, pattern at work.

Just to note: IBEC spokespersons complained when this fact was brought to their intention. Theuy claimed that management earnings was made up of annual bonuses which distorts the figures. Never mind the granting of bonuses during a downturn – it should be noted that management were awarded (awarded themselves) 2.5 times the bonuses this year as in 2006 – during a high period of growth.

It is also clear that production workers are taking the brunt of the job losses. Over the year up to the 1st quarter 2009, 17,000 factory floor workers lost their jobs in the manufacturing sector; however, there was an increase of 500 jobs in the management/professional employment in the manufacturing sector. Employment levels throughout the financial sector remained relatively static.

This is just a snapshot so we should treat all this with caution. Still, so far it seems that manual workers are losing their jobs and some slight reduction in hourly earnings while managers/professionals are maintaining job levels and increasing their earnings.

This phenomenon – regarding employment – would seem to be born out by the Quarterly National Household Survey (2nd quarter). The traditional working class and low-paid service occupations are taking the hit while management and professionals are suffering less. Of course, all this is gross and doesn’t take into account particular enterprises and subsectors.

Some posts I’ve done up on these and related issues can be found at:

http://notesonthefront.typepad.com/politicaleconomy/2009/08/maybe-its-the-leveller-in-me-but-when-times-are-hard-we-should-all-put-our-shoulder-to-the-wheel-share-out-the-pain-and.html

http://notesonthefront.typepad.com/politicaleconomy/2009/09/in-a-previous-post-httpwwwprogressive-economyie200909wooly-mammoth-conundrumhtml-where-i-disputed-the-economic-ben.html

http://notesonthefront.typepad.com/politicaleconomy/2009/09/what-kind-of-recession-are-we-having-or-rather-how-is-it-impacting-on-different-sectors-of-the-labour-force-some-time-a.html

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12. EamonnCork - October 1, 2009

A lot of interesting stuff there. It shouldn’t come as a surprise to find that the same people who suffered worst in previous recessions are suffering worst in this one, but perhaps it does because the trope that it was the middle class who were suffering worst this time has been mindlessly repeated so many times. Like our high crime rate and the increasing number of deaths on the road it’s one of those things which, though incorrect, conventional media wisdom states that ‘everybody knows.’ Or, to use an old chestnut, ‘while this may not be reflected in the statistics, anecdotal evidence suggests . . . ‘ Perhaps this may be attributable, to some extent, to the phenomenon which in the States was called the ‘Whiny White Guy’ effect. In other words, the tendency of relatively privileged sections of society to suggest that somehow they’re really the hardest pressed sector of society. Witness for example people mentioning their multi home ownership as though this was actually a selfless act carried out on behalf of the state as a form of patriotism. Ditto the decision to put your child in a state subsidised fee paying private school.
In reality, as shown by the protests yesterday, the worst affected by the recession will be the very worst off. I’d be inclined to save my sympathy for the kid whose homework club is going to be axed rather than the child whose parents feel ‘demonised’ because they opted for private education, pace a classic Whiny White letter to the Times this week. As Eamonn Dunphy once said to a Sinn Fein spokesman, ‘I’m not demonising you, I’m disagreeing with you.’
There’s an almost mystical element to the ‘Share The Pain’ thing which I think derives as much from the lingo of self-help books and therapy as it does from economic calculations. I’m reminded of the way in which Garret Fitzgerald presented the deflationary budgets of the mid eighties, which worsened unemployment to the extent that it was over 15% from 1984 to 1989 and emigration to the extent that it was over 2% of the entire population in 1987, as somehow good for the national fibre. They might not have done any good but they showed fortitude seemed to be the message. Which I think is how the latest cuts will be sold.
Your site still makes great reading Michael.

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13. alastair - October 2, 2009

So that’s a scale with 9 points on it across a lifetime.

Assuming you never seek promotion of course. The same scenario is true of the private sector – no advancement through the ranks – no serious salary increases beyond those tracking inflation.

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WorldbyStorm - October 2, 2009

No scope for it in the job I do. :(

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14. Crocodile - October 2, 2009

Me neither.
If you sign on for a lifetime stint in a job where there’s no promotion, but there is a clear incremental scale ( points out the secondary teacher leaning over my shoulder ), you don’t see those increments as a pay rise, just as your money from the start, contractually guaranteed. ‘Pay rise’ does suggest an award of some kind, one side conceding to the other, rather than something locked in from the start.

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WorldbyStorm - October 2, 2009

Which is precisely why it’s difficult to generalise about the public sector any more than the private sector. I’ve known people who got annual wage reviews in the private sector as of a right and the variation in the percentage was discretionary and a factor of productivity, etc. I’ve known people in the private sector who got wage increases only when they put the resignation letter in… and so on.

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15. Fighting with one hand tied behind your back… ICTU vs IBEC « The Cedar Lounge Revolution - October 22, 2009

[...] I can point you here… [...]

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16. brownbreadandbluebananas - October 31, 2009

Have a look here for my perspective on the Public Sector Pay Bill – http://brownbreadandbluebananas.wordpress.com/

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