The big question on pay is: Can we afford it?

I couldn’t care less what public sector workers are paid as long as the country can afford it, says Jim Power

This week saw the publication of the Public Service Pay Commission report. This report will form the basis for the imminent negotiations between the Department of Public Expenditure and Reform and the public-sector unions aimed at engineering an extension to the Lansdowne Road Agreement and setting the basis for future public sector pay determination.

A key part of this will revolve around the reversal of the Financial Emergency Measures in the Public Interest (FEMPI) legislation that was introduced early in the financial crisis to address pay and pension elements of public expenditure. The most controversial elements of this legislation involved a public-sector pension levy that averaged around 5%, cuts to pay; and bringing in new recruits — such as teachers — on lower pay and inferior conditions. The latter was an outrageous measure, but the unions signed up to it to protect their existing members.

The unions will be looking for a reversal of these measures. It has to be remembered that all of these measures were introduced in an effort to stave off forced redundancies of full-time employees in the system.

The report did not contain anything surprising. The key messages are that pre-2013 public sector pensions give public sector workers an advantage of between 12% and 18% over private sector workers; that lower paid workers in the public sector are paid better than their equivalents, and that higher paid workers are somewhat behind their private-sector equivalents. Furthermore, limited consideration was given to the value that should be attributed to the security of tenure that public sector workers enjoy, in marked contrast to their private sector equivalents. However, no attempt was made to measure the monetary value of this.

When the talks begin, relative pay levels between the public and private sector, pensions, and security of tenure will likely feature prominently in any decisions on pay and conditions. This will be subject to constraints imposed by the state of the public finances. It is also likely once the FEMPI-induced public sector pension levy is abolished, it will be replaced by a pension levy on public sector workers earning above a certain level, probably in the region of €60,000 per annum. It is incumbent on both sides to address areas where recruitment difficulties are prevalent.

In any debate on public sector pay there is a preoccupation with relative pay in the private sector. Comparing relative pay is incredibly difficult, not least due to length of service, qualifications, the quality of pension coverage, bonuses, and other perks.

However, a more fundamental point is the relevance of such comparisons. Private sector employers will pay workers what they can afford, and if they pay more than that, they will go out of business and if they pay less, they will most probably lose their employees, depending, of course, on the economic environment. In contrast, public sector workers are paid from limited tax revenues, and are subject to budgetary constraints. If the public sector pay bill grows too strongly, resources will be diverted from potential tax cuts for all tax-paying workers or from the quantity and quality of public services.

If private sector workers believe that the public sector is so much better, then there is little stopping them from moving across to the public sector and vice versa. Nobody is forced to choose one sector over the other, so why the preoccupation with these dubious comparisons? I couldn’t care less what public sector workers are paid as long as the country can afford it.


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