Fighting with one hand tied behind your back… ICTU vs IBEC

Reading the discussion between Paul Sweeney of ICTU and David Croughan of IBEC is a dispiriting experience. Dispiriting because Croughan articulates the current deflationary orthodoxy, in this instance the necessity for public sector wage cuts as some means of achieving ‘fairness and effectivity’ while Sweeney puts up the counterargument. There’s little enough heat, it’s all ‘in sorrow more than anger’ but by the same token there’s little enough light either Croughan is able to make a very questionable statement that lies at the heart of his thesis pass almost entirely unchecked.

Croughan argues, not unsurprisingly, that,

The central problem has been the decline in competitiveness caused by the squeezing out of the traded goods and services sector by an overheated construction industry, which bid up wage rates and other costs. We are now 15 per cent less competitive in relation to our trading partners than we were in 2000. This position needs urgent redress. In a single currency, a loss of competitiveness cannot be countered by devaluation; costs, including labour costs, must fall.

This will be a most interesting process to see. Hitherto the media have been delighted to point to prices falling – ‘Rip-off Ireland’ etc. But if wages fall in tandem then the impact of price falls is diminished or even reversed.

Croughan argues also that:

There is a clear choice between jobs and pay. There have been enough job losses. It is grossly unfair and obviously ineffective to allow Irish pay rates to put more people out of work. That is why pay rises before 2011 are unrealistic.

This is an interesting one too. Is he arguing for a freeze or cuts. There’s a degree of ambiguity here between ‘labour costs’ and ‘no pay rises’. Worth probing I’d have thought. And indeed the stated IBEC position is that:

“Proposals published in June for the suspension of the private sector pay terms of the national agreement need to be formalised by IBEC and ICTU. This will give clear direction to the State dispute resolution bodies such as the Labour Relations Commission and the Labour Court, which should recognise the new norms. Clearly the agreement of a year ago is inappropriate and the honest course is for all to accept these new realities.”

And then… the fetishistic talisman of the public finances… for if we rub the talisman, vigorously, then all will be well… nevermind that the actual impact of say a 5% wage cut will be… well, you can read it here.

The reality is that tax revenue, which is solely reliant on our ability to successfully trade goods and services at home and abroad, is insufficient to pay for current public expenditure levels.

No dispute there.

Despite April’s Supplementary Budget, which outlined the corrective action needed to reduce the borrowing requirement to less than 11 per cent of GDP, the most recent exchequer returns point to the deficit rising to an unsustainable 12 per cent. This will result in an even higher cost of servicing the debt, which is already set to rise from €3.9 billion in 2008 to €11.2 billion by 2013. Attempts to improve the situation by excessive tax increases will only make matters worse by stifling growth and adding even more to the burden of those trying to compete in a competitive world.

Hmmm… Some dispute there, but that’s another days work.

Anyhow, he continues…

Both the private and public sectors are in a similar position: the private sector must contain costs to survive and grow businesses and employment; the public sector must contain costs within the limits of tax revenue to avoid crippling taxation or unsustainably high debt levels. The burden of adjustment must therefore be borne by both public and private sectors.

And then we get to the heart of the argument.

Ibec has carried out extensive survey work this year on a sample of over 500 companies employing close to 90,000 employees. On average the total pay bill in private sector companies has decreased by 11 per cent in 2009. Of course, this has not been uniform across all sectors; those companies facing the most difficulties cut the most. Of the 56 per cent of companies that had reduced their pay bill, the average reduction was 21 per cent.

Anyone see the omission? Well, let him continue for a second.

Private companies have achieved these pay reductions in a variety of ways. Aside from wage reductions, some employees have accepted pay reductions by forfeiting shift premiums; others have worked unpaid overtime; others have agreed to taking one or two days a month of unpaid leave. This has not only reduced pay levels but has also increased productivity.

Fantastic. But it’s also cut peoples wages significantly.

A large number of companies indicated further pay reductions were needed in 2010. While not all private sector employees have experienced pay cuts, those working in businesses most affected by the recession have accepted substantial pay reductions of the order of 12 per cent to protect their jobs.

Okay, a further omission – no?

What is the figure for the number of companies that have seen wages cut out of the 500? What he gives us is data pointing to ‘on average…total pay bill… decreased by 11 percent in 2009 (btw, 2009 isn’t over yet so one wonders whether we should treat that with some degree of caution). And that 56 per cent figure… What is the provenance of that?

He doesn’t say… curious – eh?

I can point you here…

Or, computer, browser and keyboard operating in tandem, I can go to FINFACTS from last month here and read a slightly different outline of the situation.

A new IBEC survey of 508 companies, which together employ over 86,000 employees, shows that the majority of Irish enterprises had pay freezes and reductions in staff numbers in 2009. Just over 20% of employers have implemented pay reductions. The IBEC Business Sentiment Survey (Q3) was carried out between 17-29 August 2009.

Now maybe this seems like semantics, but it truly isn’t. For it is one thing to argue that 56 per cent of the private sector has ‘reduced their wage bill’, but quite another to say that just over 20% had implemented pay reductions.

The raw data is even more revealing.

More than half of companies (56%) have reduced their pay bill over the past 12 months by an average of 21%.

• Pay freezes (59%) and reduced numbers employed (55%) have been put in place in 2009
• Recruitment freezes (59%) and retraining of existing staff (45%) are among the most likely actions by employers in the next three months.
• A reduction in permanent staff is expected in 28% of companies and is under consideration in a further 42%.
• For 2010, half (48%) expect their pay bill to remain the same and one third (33%) expect it to decrease. The average expected decrease is 14%.
• A reduction in temporary numbers is expected in 32% of companies with 29% considering doing so.
• Short-time working is expected in 22% of companies, with a further 45% considering implementation.
• 31% of businesses intend to eliminate bonus payments and a further 29% intend reducing such payments.

Now a wage freeze is no fun, but that’s what is being experienced in the public sector as well, and an overtime ban and a recruitment embargo (even if we put aside all else such as pension levies), and lest the issue of incremental pay be thrown in I would be amazed if that isn’t subject to a freeze or reworking at the upcoming Budget.

Let’s put this a different way. Of the 508 companies IBEC approached, and we have no sense of how self-selecting that process was, 46% were clearly increasing the wage bill. Some 80% saw wages remain the same or increase (and this at a time when we are told inflation has dropped 6/5%, albeit 4% of that is mortgage related) and 41% continue to recruit. Hmmm… not quite so exciting is it?

Note too the ‘expected’s’ and ‘under considerations’ etc. Because if one looks at the data the glass is more than half full for one of the most severe economic situations we’ve experienced in the past fifty or so years, I’d have thought, and by quite some way. And already the economic forecasts are considerably brighter than they have been.

So, to Paul Sweeney.

What are his thoughts on these matters? Well, I agree with him as regards the utility or otherwise of wage cuts…

ECONOMY-WIDE CUTS in wages will reduce sales, throw people out of jobs and close firms. It will be deflationary and will delay the recovery. It will reduce tax revenue to the Government and require increased public spending on job supports.

Indeed Michael Taft has noted how this very policy continues to undermine the Government’s own plans for recovery forcing it to greater and greater breaches of its own stated economic plans as regards deficit control.

But to the issue of wage cuts…

Secondly, earnings, wages and salaries in the private sector have not fallen in recent times. They have risen, the latest data show.

Okay. Er… what data?

Nope, we’re moving onto thirdly…

Thirdly, and this is rarely acknowledged by the wage-cuts chorus, Irish earnings, wage rates and salaries are still below those in most competitor countries, according to published comparative data. More importantly, the total cost of employing a worker in Ireland is well below that of most competitor countries (22nd down a long list of the rich countries according to the Organisation for Economic Co-operation and Development in 2007). I acknowledge that the rise in the value of the euro has reduced our position since then.

And, indeed, fourthly…

It is generally not known that Ireland’s productivity remains one of the highest in the world, in spite of recent slow growth. The last OECD survey put us at second highest in the world after Norway and ahead of the US in 2006. However, our position is boosted by transfer pricing by multinationals companies (MNCs). But even adjusting for this, we are still one of the top performers.

Which is great, but really, we need to see some sort of defence against the earlier statements by Croughan. Now in fairness to Sweeney I presume that his piece was written not as a response but as a companion piece and therefore he did not get access to the text of Croughan’s article. But that said it is no secret as to what line of attack IBEC are taking and it is necessary when dealing with IBEC – even at arms length, as here – to address their discussions.

And also in fairness he does touch upon the issue once more.

Where total earnings are being adjusted downwards in individual firms in the private sector, it is mainly through reduced hours, new ways of working, reduced bonuses, etc. Yet unions are agreeing to reductions in the basic wage rate where the firms or jobs are at serious risk. However, as stated above, private sector earnings are not falling nationally. And Irish exports are doing well compared to those of many countries, which is instructive in this debate on competitiveness.

And while absolutely correct that’s not really sufficient, particularly in a debate where figures are thrown about by the contesting parties – there is an overriding necessity to be clear and to be responsive.

This may be an unlovely comparison, but the last twenty years saw political parties recognising the necessity to issue rebuttals on specific assertions. That that devolved on occasion into a ‘he says, she says’ process doesn’t take away from the reality that on occasion it was central to shaping political arguments. I note that IBEC, ISME and the SFA are past masters of shaping releases on these very matters on a continual basis. There’s some good stuff on the ICTU site,