That public/private wage cuts issue… September 16, 2010
Posted by WorldbyStorm in Economy, Irish Politics.trackback
As Marie Sherlock noted at the Greaves School on Sunday, one small piece of information came out last week that may have been largely ignored in the news about Anglo-Irish and other issues.
The Central Statistic Office released the latest figures on wages. Some headline figures from the PDF which you can download from the CSO?
Average weekly earnings fell to €682.91 in Q1 2010, down from €709.55 a year earlier representing a fall of 3.8% over the year. This compares with a revised estimated decrease of 0.4% in the year to Q4 2009. See tables 1, 2 and 2a.
And…
Across the economic sectors average weekly earnings fell in 11 of the 13 sectors with the largest decreases in the Education (-9.1%) and Transportation and storage (-7.3%) sectors. See tables 1, 2, 2a and graph opposite.
And…
Weekly earnings in the private sector fell by 2.8% compared with a fall of 5.5% in the public sector. The Q1 2010 estimates reflects the
decreases in public sector pay rates announced in the Budget in December 2009. Earnings in the public sector are, however calculated
before deduction of the pension levy that was introduced in March 2009.
Indeed that tied into a point that Sherlock made which was that in the private sector there was considerable variation as to how, and whether cuts were implemented with in the vast majority of instances, I think she quoted 60% plus, wage freezes being the norm.
Given that the totality of the public sector has taken wage cuts this disparity is quite marked. It’s also instructive to see that:
Davy analyst Aidan Corocoran said the fall in average weekly earnings was “dramatic”
“The public sector wage bill was slower to respond to the recession than that of the private sector,” he wrote in a note. “But the public sector caught up in Q1 2010 as the decreases in public sector pay announced in December’s Budget kicked in.”
Note though that those decreases don’t include the pension levy. I’ve no particular problem with that levy (albeit a tapered introduction across three or four years would have been arguably a better way to this in a deflationary economy), but to argue that cuts in an income of upwards of 12% on average across the public sector aren’t in and of themselves a significant burden to those who have to shoulder them is bizarre (as indeed are the implicit calls from the Sunday Times editorial this weekend which seems to seek more). Particularly when cuts in the private sector as is now evident from the figures, and in truth this was already noted by various other bodies across the past two years, including IBEC and other private sector research, are of lesser range and impact.
And while it is absolutely correct that there has been significant unemployment in the private sector (although the public sector has not been untouched by same, as any one in education and other areas can attest), to try to lock that into the public sector in some nominal equality of pain seems to miss the point that that is how the private sector operates and that is in no small part why we have social welfare and other instruments to defray the most pernicious effects of job loss and creation.
Or to put it another way, there’s been enough rhetoric about seeking some sort of ‘parity’ of pain, a task which seems futile to me.
But that said, what about the spread of cuts in the context of different work areas.
The weekly earnings of Clerical, sales and service employees fell by 5.9% in the year to Q1 2010. Relatively lower decreases were recorded for the Managers, professionals and associated professionals and Production, transport, craft and other manual workers occupational groups (-3.9% and -3.5% respectively).
Telling, is it not, that Managers, professionals and related professionals have had much smaller wage cuts than clerical, sales and service employees (interesting to parse out the production, transport and other manual workers and why their wages haven’t fallen as precipitously – I’d hesitantly suggest that it is possible that unionisation in those areas might have something to do with it but I may well be way off).
Mandate in the Irish Times piece notes that:
…the data showed that people on lower incomes are being squeezed the hardest by the recession and called on the Government to protect low-income workers in the upcoming Budget. “Today’s earnings figures published by the Central Statistics Office show that the weekly earnings of the lowest paid workers in the economy – clerical, sales and service staff – fell by 5.9 per cent in the year to the first quarter of 2010. Average weekly earnings for such staff are now less than €470 per week and work out at around €24,000 per year,” said general secretary John Douglas “Ironically, while the incomes of the lowest paid workers are falling lower than others within the economy, the pressure they are experiencing from rising prices is the greatest. Yesterday’s inflation figures demonstrate that the cost of transport has increased somewhat with quite significant increases in clothing and footwear prices as well as home-related costs like electricity charges.
I wouldn’t be too optimistic if I were Mandate. The cries for incorporating those on low incomes into the tax net gather pace as the budget races towards us. And while there’s little enough cover for the government in inflation figures (in terms of arguing that costs of living are decreasing), that’s hardly likely to stay their hand.
The trajectory of income tax receipts over the past 2 years, despite the addition of the income levies, shows a major decline in aggregate income across both sectors.
The difference really is in how these income declines have been distributed.
In the private sector the distribution has been narrow and deep, with job loses for many, cuts in hours for quite a few, pay reductions for some, and little or no change for a fairly large cohort.
Whereas in the public sector the distribution has been broad and shallow, with pay cuts for all and no permanent job losses (though that protection didn\’t extend to temps and contractors).
Obviously this is due to a different dynamic operating in each sector. But it is worth considering which form of loss distribution is more beneficial to the workers, assuming the aggregate income decline is unavoidable.
Meant to respond to you earlier, but matters Papal…
Fair point. I guess, coming from the private sector I’d always have the view that being in the private sector is never a situation where one can count on long term stability and across twenty odd years I’ve been made redundant twice. On the other hand in those twenty years it’s only working on contract for the public sector that I’ve ever experienced a wage cut and these cuts have been significant. So i guess I’m arguing that we should be able to move beyond the pain olympics.
And move to where? Well, I think the issue of how those in higher reaches of both PS and private sector have in certain instances been insulated from cuts/etc is worth considering.
Of only the most peripheral relevance I know, but Timothy Noah over on slate.com has been running an excellent series on income inequality over the past week or so:
http://www.slate.com/id/2266025/entry/2266816
Might be interesting to some of this parish …
It’s fascinating, I’ve been following it all week and the findings are very very interesting. Education, education, education…
Quite a few of my public service colleagues are women who are experiencing a new dynamic. Four years ago their husbands in the private sector were driving BMWs and paying the mortgage on big new houses, while the wives piled as much as possible into AVCs, in hope of an early retirement – and several freely admitted that their salaries went towards discretionary spending: holidays, gym memberships etc.
Now there are two groups, of people who are in much the same position, husbands having had at worst a pay freeze while prices have dropped…and a few who now find themselves as main breadwinner. Mortgage payments are falling behind, AVCs are gone, and if one of the first group has been treated to a spa weekend, she’d be wise to keep quiet about it. The latter group is not pleased to be told ‘at least you have a job’ or ‘the country can’t afford your pension’. They’re working harder than ever, for the same money as 7 years ago, and with dreams of promotion or early retirement dashed. And they know that the myth of all sharing the pain is just that- a myth.
That would though be a fairly small fraction of the PS employee demographic one imagines (not tiny, but still quite small – at least in relation to BMW driving partners). I’m not dismissing their experience, but surely the issue is most pointed for those on median wages and lower?
It is and I don’t deny it. But the point I was trying to make wasn’t so much about the position of mid-ranking public servants as about the existence of a large number – even a majority – of middle-class households in which the cuts taken by a partner working in the public service have been balanced out by the lack of real pain in the parts of the private sector we hear so little about.
I see what you’re getting at. What’s more tricky is of course further down the income levels where people on very ordinary wages in public and private sector or where unemployment hits a family see a precipitous drop in incomes. Although, perhaps they can join the ‘welfare class’ so blithely dismissed by one E. Harris.
Marie Sherlock draws attention to the existence of a large group of workers in the private sector who have taken no real pain up to now. She doesn’t name names, in terms of specific businesses. One wonders, for instance, when driving through Leixlip,what the position is in Intel and HP. Pay freezes, I’d assume, but falling rents and retail prices too. Surely the same in other tech and pharma industries.
Able to handle income tax rises? Probably, but the chief exec of HP tells the government what to do in the budget, doesn’t he?
The problem is that it’s not systemic in the private sector in the way that it is in the public sector. Cuts across the board in the PS aren’t replicated in the private sector. On the other hand a wage freeze in an environment where interest rates are increasing isn’t any fun either, particularly if the prospects for job continuation begin to look shaky.
But again, the pain thing is at this point a diversion. All sectors have suffered, some in all of them more than others. I’d suggest that those on lower incomes in the PS and those who’ve lost jobs in the private sector most of all.
“the lack of real pain in the parts of the private sector we hear so little about.”
There is real pain whether a job lost or a wage cut or fear of both down the line.The email from head office is feared for the news it might bring.If say Intel closes everyone not just those on the lowest wage will lose their jobs. Look at Connolly shoes. Rather than pay a little more than the basic redundancy they just shut and all lost everything not just those who were facing redudancy. There is I would guess not a single person in employment who can say without crossing fingers that their job is safe.There is an enslaught of competition across the world, reduced demand as pratically every economy deflates.
This is the worst recession since the 30s.
I think that’s a fair point Jim. There is real pain in parts of the private sector, and it is greater than standard operating procedure (i.e. the swings and roundabouts of losses in better times). But again, and this was something I was discussing with Bartley, the pain in all sectors is genuine and considerable (and likely to worsen for private sector workers if welfare is cut given the scale of job losses – though that’s not something you’ll hear many on the right saying yet, though no doubt they’ll use it agin the public sector).
But that’s why in a way it’s time to move beyond the pain trope and start pushing for something to be done to improve the situation and of course to point out the internal discrepancies within the PS or the private sector.
The stark question that should be asked coming up to the next budget is : ‘who can afford an income tax rise?’.
My answer would be: higher paid public service workers and most private sector workers. The myth of universal pain will be used to exempt the latter, if business-centric commentators get their way, because they’re ‘real’ and nurses and teachers aren’t.
My answer would be: higher paid public service workers
…who got themselves exempted from cuts last year with the not-so-veiled threat in that infamous letter to Government pointing out that they would be responsible for implementing “pain” on behalf of their masters.
That’s true EWI. And I think that added to what Crocodile says that this is why we’re hearing the recurrence of the IMF must sort it out line and impose 25% wage cuts on the PS. Of course to do so would incur secondary and tertiary effects that would seriously damage the economy (mortgage defaults, etc etc). So whether it’s a case of softening up for say a further wage cut (tricky but far from impossible under Croke Park) or whether it’s a case of softening up for general tax rises I don’t know.
Crocodile
The stark question that should be asked coming up to the next budget is : who can afford an income tax rise?.
My answer would be: higher paid public service workers and most private sector workers.
Well its worth noting that, by definition, exactly half the private sector earn at or below the median wage for that sector. I dont have an up-to-the-minute number for this median to hand, but Conor McCabe calculated it a while back as €26,420 on the basis of the 2007 Nation Employment Survey:
http://dublinopinion.com/2009/07/12/wages-and-class-in-ireland-an-analysis-of-the-national-employment-survey-2007/
On the basis of those figures, we could estimate that most private sector workers clear less that €30k which wouldn\’t leave much wiggle-room.
The reality is that the driving of BMWs is confined to a very narrow sliver at the top of the pile (of both sectors).
But that said, its inevitable in the medium term that everyone will end up paying substantially more tax.
I think you’re right Bartley. What’s striking to me, and perhaps I’ve missed it, is that we haven’t heard anything yet of what sort/level of increased taxation we’re facing. I find the silence, well, a bit ominous to be honest.
I find the silence, well, a bit ominous to be honest.
There’s been plenty of whining by Beemer-owning commentators about how the poorest are getting a free ride by not being in the tax net; I suspect that this will be included at least.
“higher paid public service workers and most private sector workers. ”
I agree with Bartley on the first. Secondly why not just say more tax on everyone on over 80 grand. With even more on everyone on over 200 grand.
SF this morning called for a max wage in the public service, bravo. In fact they were saying what Labour should be saying. I leave aside whether by leavinbg the door open to a coalition deal if they can be trusted. But the fact of the matter is that they are saying what Labour does not say and should.
The interest is over 6 % as I write. WE are in serious trouble. And the c uts we have had already might look benign in a years time.