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David Beggs and the 70% solution… December 3, 2009

Posted by WorldbyStorm in Economy, Irish Politics.
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Poor old David Beggs is getting it in the neck for having the temerity to suggest that 70% of the private sector haven’t seen a cut in their wages. Now why on earth would he have made such a statement? One must presume he excludes taxes and levies (bar the pension levy) since all are subject to them. And that being the case is there any substance at all to such a preposterous figure?

Well, perhaps it was on foot of an Irish Times piece on a Watson Wyatt poll, an international consultancy which in a survey of 7 countries and a 100 business people in Ireland and found data which I dealt with a week or two ago in this post:

I’ll quote from it liberally:

Indeed a partial survey – partial in the sense that it is limited and we don’t know what sectors were surveyed – by Watson Wyatt, a consultancy firm, released last week shows that of the 100 companies surveyed in Ireland by it:

Significantly, 26 per cent of Irish firms surveyed had introduced pay cuts, more than twice the EMEA (Europe, the Middle East and Africa)average. This also represented a 50 per cent increase on the number of Irish firms who reported salary cuts in a preliminary survey carried out by Watson Wyatt in May 2009.

It’s intriguing to note that WW only surveyed 700 firms in total so if Ireland comprises 1/7th of the total one wonders how that impacts on the numbers. And it also finds that Irish companies had…

…the highest rate of workforce reduction among EMEA nations, with close to 80 per cent of Irish respondents reporting changes to their organisational structure and 61 per cent reporting lay-offs. This compared to an EMEA average of 48 per cent reporting redundancies.

61 per cent seems very high. Again, how representative all this is is difficult to say. But the pay cuts figure is a long way from ‘across the board’. And:

The survey also found that pay freezes have been more prevalent among Irish employers than in those in other EMEA markets, and firms said they expected this trend to continue in to 2010. Some 75 per cent of surveyed Irish companies already had a pay freeze in effect and a further 14 per cent expected to implement one within the next 12 months.
The average pay increase predicted by respondent Irish companies for 2010 was zero.
Almost half of Irish respondents reported that they would pay out lower employee bonuses for this performance year, and up to 35 per cent claimed they would not be paying any bonuses for 2009.

So just under 2/3rds of Irish companies surveyed said they would be paying bonuses this year. Hmmm. Some 3/4’s were implementing pay freezes (albeit bonuses were still being paid, nice that given that bonuses tend to be for certain sectors inside employments)…

You can read further information on this here in a post I did in September where Gerald Flynn of Align Managment Solutions discusses the Q1 figures and a survey by the Chartered Institute of Personal and Development (CPID Ireland) and Deloitte of ‘senior people managers’ and which 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.

You can read more again from a post I did here which refs an IBEC survey of 508 companies which again showed only 20% of companies had implemented pay cuts.

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.

And for an analysis of the Q1 CSO figures we can go to here on Irish Economy.

What you’ll see in all this is that the figures provided come not from left of centre sources but from the state or from private sector or consultancies etc. You’ll also notice that the polling data has been consistent and coherent. Wage freezes or increases amounting to about 70 to 80%. Cuts somewhere between 20 and 30% tops. From all the above Begg would have been justified to suggest that around 80% of private sector employments hadn’t seen wage cuts. That he didn’t is a credit to his own good sense short of any further CSO figures.

Comments»

1. Pidge - December 3, 2009

The thing I’ve never understood is the relevance of all this.

Even if private sector wages were increasing massively (and assuming, for the sake of argument, that this has no effect on inflation or tax take), that still wouldn’t approach an argument for sustaining the current public sector pay bill. The issue at hand is not to try and meet some abstract concept of benchmarked fairness, where the public sector is hurt only in order to mirror private sector pain – the issue is that the state cannot afford the current level of expenditure.

Keeping up this current level of expenditure massively prejudices the state’s ability to keep up public services in the future, and borrow for capital projects (which are more appropriate to borrow for). I simply don’t care if the private sector is experiencing cuts or increases – what I care about is the state’s ability to provide even basic services in the future – an ability being weakened by current levels of public sector pay.

This whole debate shouldn’t be about endless comparisons between public and private sector pay, but rather about the levels of pay the state can actually sustainably afford.

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EWI - December 3, 2009

This whole debate shouldn’t be about endless comparisons between public and private sector pay, but rather about the levels of pay the state can actually sustainably afford.

And about the taxation of wealth we can sustainably afford too, let’s not forget.

By the bye – where are all the Irish fiscal hawks on NAMA, which is the real problem looming over this State…?

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sonofstan - December 3, 2009

The state says it can’t afford current levels of public service pay because it doesn’t have the money because the tax take is down. One of the reasons given for the fall in the tax take is the supposedly widespread cuts in pay in the private sector. Actually, the income tax take is down about 10%, which largely reflects the absence of the newly unemployed. So if, as would seem to be the case most private sector workers – still in employment – are earning the same or even more than a year ago, then an overall increase in the rate of income tax, a measure that would hit private and public sectors alike, would appear feasible as a means of maintaining public services. But because the government and IBEC don’t want that, because of some nonsense about ‘competitiveness’ or whatever, we won’t get that. Instead we get the myth that the state can’t afford the current ‘high’ levels of public services because wages are too high there – its not true, and you can say its not true until Brian Lenihan stops dyeing his hair, and still the papers and RTE – and the unions – will accept the lapidary figure of 1.3bn as representing what ‘needs’ to be cut from the public service pay bill.

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Pidge - December 3, 2009

There’s a few assumptions there which I’d have issues with. The main one, for me, though, is this idea that the drop in state income has mostly been in income tax, and that an increase in income tax can reasonably make up the difference.

You seem to conflate the overall tax take with the income tax take, implying that one can simply up the income tax rate to compensate for the 10% loss in income tax. That’s not the whole issue. If you look at the Dept’s figures for the end of November tax receipts (http://tinyurl.com/ydnxoar), you’ll see that income tax – even though down 10% – is the least affected category. VAT – which, in 2008, was the largest source of income for the govt – is down over 20%. Corp tax is down 25%. CGT down nearly 50%. CAT down nearly 80%. Stamp duty down nearly 50% etc etc. The problem is much more than income tax, and in order to make up those shortfalls, they’ve much, much more than 10% difference in income tax to make up.

Nearly two thirds of the tax take comes from taxes other than income tax, and these sources of state income are, by my calculations, down nearly 26% on 2008 levels. To argue that this huge, huge difference can be made up solely by income tax increases strikes me as – and I don’t like using this sort of line – a kneejerk ideological response.

Granted, there’s been such a response from the right wing cut brigade, but I think they just happen to be closer to the mark than the other pole who advocate income tax increases. So no, I don’t see how an income tax increase would be “feasible” to maintain current services, at least not at their current prices.

I don’t mean to be confrontational, but have you actually looked at the recent tax receipts?

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WorldbyStorm - December 3, 2009

To add to SoS’s point… income tax is only part of this and I can’t believe that anyone seriously believes it’s the only solution. But to look at the current situation and argue that because taxes are falling across a range of indices means that there’s no way through taxation to make up the difference in part seems to me a counsel of despair. But of course it’s not just tax. What about reliefs?

Remember too the Commission on Taxation argued that its remit was to maintain the ‘low tax’ regime in this state. This way lies madness. We cannot have the lowest or near the lowest tax revenues across a range of areas in the EU-15 and then expect to have even half-decent public services. And if that’s ideological, well, then, that’s ideological. It’s an ideology that even states under centre right governments elsewhere in the EU appear to have no problem with. Now, I’m all for Irish exceptionalism, but not to that extent.

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alastair - December 3, 2009

Actually, the income tax take is down about 10%, which largely reflects the absence of the newly unemployed.

Actually the income tax take is down 13% in just 3 months, and not on the back of the newly unemployed, because the live register figures haven’t shifted greatly over the last three months. The CSO figures indicate quite clearly that the ‘70% no income cut’ is rather unlikely to say the least.

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2. irishelectionliterature - December 3, 2009

Some firms (like my own at the minute) , rather than cut wages have decided to cut jobs.

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EWI - December 4, 2009

As have the public sector throughout this year (maybe ten percent of my own colleagues are gone either through being cashiered out early – and not replaced – or being let go from their contracts).

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WorldbyStorm - December 4, 2009

I’ve seen a similar dynamic.

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3. Pidge - December 3, 2009

Also, the problem with IBEC’s survey and the other one is that they don’t appear to be weighted. (Correct me if I’m wrong on that.)

Say that there are three businesses in a town. There’s a shop, a pub, and a pharmaceuticals factory. The shop and pub employ ten people between them, and the factory employs 300. The shop and pub are still doing okay, and raise wages slightly, and each take on one extra staff member. The factory isn’t doing well, so it slashes wages and lays off 100 staff. A survey conducted along the lines of the one IBEC did (as I read it) would say that 66% of the private sector in the town has raised wages, and even hired more people, while only 33% have lowered wages or laid people off.

I know that that’s something of a self-serving example, but large businesses are more flexible in terms of the number of people they can fire than small businesses. A corner shop, for example, will tend to hire the same amount of staff when open, regardless of business. A business with 300 people can let employees go and continue in business. A weighted study would be more indicative of reality.

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4. WorldbyStorm - December 3, 2009

Three thoughts Pidge. Firstly the reason we have a social welfare state (at least in part) is precisely because private enterprise is messy and cannot guarantee security of tenure and sometimes and more recently it fails people. So the idea that because people lose their jobs in the private sector somehow necessitates some sort of response in the Public Sector overlooks the reality that it is precisely this dynamic which is intrinsic to the private sector.
Bar the last short while I worked exclusively in the private sector and chose to work there and made no efforts to join the Civil or Public service (bar in the UK where I had a most curious interview way back when – and where I was offered a job which I didn’t take). In part I chose the private sector because that was what I was trained for, in part because it seemed more exciting. And it has been, to a point. With a lot of pain and angst through redundancy and unemployment. But… the main thing was that whenever the private sector failed me there was a safety net for me to call upon in terms of public provision either here or in the UK. At no time did I feel resentful towards my friends who took much less interesting jobs – from my naive perspective – and generally not quite as well paid ones across that time period. And I still don’t.

Secondly, and this follows on from EWI’s and SoS’s points, we have a Commission on Taxation Report gathering dust because the govt. won’t implement it despite (and I’ll have more on this tomorrow) a ludicrously low take from social insurance, etc, etc… even before we get to income tax. To suggest that we can’t sustain public expenditure from the appallingly low base we start from and therefore must cut it further thereby lowering it again in the absence of making greater efforts to increase revenue streams etc is to ignore a significant side of the equation.

Finally, what reality? That people lose their jobs? This isn’t news to anyone working in the private sector over the years. What is is this absurd concept of ‘parity’. A concept that had no traction during the boom. And this isn’t news to me because I’m on a contract to the PS. And believe me I can see the writing on the wall.

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5. sonofstan - December 3, 2009

Pidge,

Yes I have looked at the tax data. My point – if you look again – was exactly that: the drop in income tax is – relatively -small compared with the drop in VAT, CGT and Stamp duty, and i was extrapolating from that as to what it told us about employment and the level of pay cuts.

The data indicates a further problem which is that we had a ridiculously small tax base and one that was vulnerable to a disastrous degree to the death of the property market. As to whether we can make this up solely through income tax – I’m not sure, though Michael Taft seems to think so, but the fact that such a thing is not even on the Cabinet table looks like – what was your expression? – a kneejerk ideological response?

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6. David Begging - December 3, 2009

It’s David Begg, Beggs

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7. Crocodile - December 4, 2009

If I can’t afford a holiday, I do without. If I can’t afford the mortgage, I find a way to pay it. Public services fall into the latter category.

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alastair - December 4, 2009

There’s a clear enough distinction between the necessity for public services, and the necessity to pay unaffordable salaries within the public sector.

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8. David Begging - December 4, 2009

Well that magnificent strategy seems to have worked. When is the strike going to be called for now?

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9. Mark P - December 4, 2009

Really this sort of thing brings out the “Death of Little Nell” in me. A heart of stone and all that. The problem being of course that the people who will suffer from the weakness, stupidity and cravenness of the union bureaucrats aren’t the bureaucrats themselves but ordinary workers.

You’d think that what with the various training courses and the like that the bureaucrats send each other on constantly that someone, at some stage, would have explained to them that if you surrender before the negotiations begin you can’t expect a good outcome.

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10. Eamonn Grimes - December 4, 2009

Exclusive footage of the ICTU meeting just after Cowan and co pulled the plug…

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Tomboktu - December 4, 2009

Phew. the video is not another redub of Hitler in the bunker 😉

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sonofstan - December 5, 2009

That clip is what McLoone should have been saying to Begg alright.

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11. Wage increments… « The Cedar Lounge Revolution - December 16, 2009

[…] wage cuts in the private sector according to various estimates amount to figures somewhere around 20 to 30%. IBEC puts it around 21%, Chartered Institute of […]

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12. Contexstaff - January 15, 2010

Nice Come Check mine out!
http://www.facebook.com/pages/ContexStaff/288613196912
its about Jobs
Thank you

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