As social unrest continues in France in reaction to a youth labour law that singled out the market for young workers for reform while keeping the protections of the jobs for life system, of both public sector workers and those employed in large private sector companies intact, the past week provided evidence of the existence of Insiders Syndrome also in Ireland.
Siptu, Ireland's largest trade union, served strike notice on Aer Lingus, following an announcement of the planned floatation of the State-owned airline. Aer Lingus employees own 14.9% of Aer Lingus shares and in addition to seeking to retain the same percentage stake, Siptu is looking for guarantees on jobs and a ban on outsourcing. Given the importance of Aer Lingus, the union is guaranteed significant media coverage for its demands.
Even if some Are Lingus workers become redundant in future, there is one existing certainty. A severance package, would be a multiple of the State redundancy payment entitlement of:
- two weeks statutory redundancy payment for every year of service, regardless of age, and
- 1 further week's pay
The earnings ceiling for the calculation is €31,200 (or €600 per week).
It was announced this week that redundancies in the economy in the first quarter of 2006 totalled almost 6,000. Most of the job cuts were not picked up by the national media and it's likely that only the basic State redundancy payment was made to the majority of the workers.
Pension coverage of Irish workforce at 52%
According to the Pensions Board, only 52% of the Irish workforce have an occupational pension. The majority of private sector workers do not have a pension and if workers in large Irish firms such as banks and foreign -owned enterprises are excluded, the pensionable cover in SME firms is at a low level.
In recent years in the private sector, employers are switching pension benefits for new workers from a system, which for example guaranteed 2/3 of final salary on retirement, to a contribution to a fund without any guarantees.
The Insiders who take the cream
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| Charlie McCreevy, EU Internal Market and Services Commissioner and former Minister for Finance established the benchmarking process as a means of mollifying public sector union demands when it was easy to claim that everyone in the private sector had made a killing during the tech boom, |
Ministers, members of the Oireachtas and public servants who make decisions for the rest of the population, are the ultimate Insiders.
Public service pensions are linked to the wage deals negotiated by government employee unions, not inflation. When Ministers and the rest of the public service got special increases in recent years because it was falsely claimed that differentials with pay in the private sector had fallen, public service pensions also went up.
It's the equivalent of a company that improves its earnings through developing new markets, increasing productivity etc., paying resulting increases also to past workers.
A private sector worker can provide for the equivalent of a public service pension for a maximum of two-thirds of final salary for retirement. However, 28% of salary would have to be put aside every year for 40 years to do so. Not many people can afford to save this amount.
This figure is based on an assumption that a person's salary increases by 5% per annum; annual investment growth is 7% and annuity rates (which buy a pension on retirement) are 4%.
The solution that is available to the small few who get top positions in the private is to have their company agree to set aside large amounts in a pension fund as funding of 28% for four decades is only something a public servant could dream of, without worrying about who was doing the paying.
Even where the private sector pensioner ends on the same salary as a public sector counterpart, the latter will continue to be a winner.
Public Sector and Private Sector Earnings
Last Thursday, the Central Statistics Office (CSO) announced that average industrial hourly pay increased by 2.1% in 2005 compared with a rise in the Consumer price index of 2.5%. Being an average means that some workers got less than a 2% increase.
The average hourly wage in the Manufacture of food products sector was €13.09 in December and was highest at €28.74 in the Electricity, gas, steam and hot water supply sector that is dominated by two State companies.
Average weekly earnings of All Employees (Industrial, Clerical and Managerial) rose by 3.4% in the year to December 2005. This rise consists of increases of 3.1% for Industrial Employees and 3.7% for Clerical and Managerial employees combined.
On February 1st, the CSO reported that average weekly earnings in the Public Sector (excluding Health) rose by 5.7% in the year to September 2005. The index of average earnings, which excludes some effects of changes in employment composition, rose by 5.7% for the same period.
The average weekly earnings for the total public sector (ex Health) was €848.87 - €44,000 annually. The average in the Semi-State sector was €901.53.
The average weekly earnings for all employees in the Industrial Sector including Managerial staff in December, was €693.95 - €36,000 annually.
In December 2000, a Public Service Benchmarking Body, established under the Programme for Prosperity and Fairness (PPF), was asked to undertake a fundamental examination of the pay of public service employees vis-a-vis the private sector. Former Davy Stockbrokers' economist Jim O'Leary was a member of the body for a period but he resigned before it reported.
In 2004, O'Leary who had joined the Department of Economics at Maynooth University, published with two of his colleagues, the results of six months' rigorous and painstaking research into public-private sector pay differentials in Ireland - Public-Private Wage Differentials in Ireland, G.Boyle, R.McElligott and J.O'Leary, ESRI Quarterly Economic Commentary, Summer 2004.
O'Leary and his colleagues wanted to discover whether similar people in similar employment circumstances were better or worse off working in the public than in the private sector. In order to do this, they had to control for attributes like age, experience, gender and education, and also for job characteristics like occupation, type of contract and size of establishment.
As the CSO data does not permit this kind of analysis, the dataset that they had to use is one based on a large-scale survey conducted by the Economic and Social Research Institute (ESRI) and used for much of its research into poverty and inequality.
The core finding was that on average, public servants earned 13 per cent more than their private sector counterparts on a like-for-like basis in 2001. The researchers also discovered that the size of this margin (the public sector premium) in 2001 was not significantly different from what it had been in 1994, suggesting that pay increases in the public sector had kept pace with the private sector throughout the Celtic Tiger period.
Another discovery was that the margin by which public service workers outearned their private sector counterparts tended to be significantly larger at the bottom of the income distribution than at the top.
A particularly striking finding was that the estimate of the public sector premium for Ireland was more than twice as large as the available estimates for other countries.
The Public Sector Benchmarking Body recommended pay increases which averaged 9 per cent across the grades examined and cost €1.2 billion a year. Government Departments introduced aspirational targets for staff that would make a laughing stock of a manager in the private sector who emulated the farcical exercise.
O'Leary says that the Public Sector Benchmarking Body never published its research results and at no stage in its 278-page report did it explicitly state or opine that public sector pay had fallen behind that in the private sector.
Last November, Davy Stockbrokers said that Irish public sector pay is on average around 120 percent of private sector earnings, having risen from 113 percent in the past five years.
In a weekly market comment, Davy said that figures from the CSO (Central Statistics Office) indicated that average earnings in the public sector are now more than €43,000 a year. This compares with €33,500 in the private sector (industrial, construction, distribution and other sectors).
"Moreover, these crude comparisons take no account of the superior pension entitlements available to the public sector," Chief Economist Robbie Kelleher said.
The benchmarking awards have widened the gap significantly even though these were supposed to help the public sector catch up.
There are no performance targets and there are jobs for life.
On Thursday last, the trade union representing lower-paid civil servants warned the Government it will launch a number of equal pay claims which could cost the State up to €300m in back-pay.
The CPSU aims to close the gender pay gap in the civil service.
The union says the first case will centre on clerical workers earning €10,000 less than prison officers for doing the same work.
General Secretary of the CPSU Blair Horan sad that he is confident they will succeed, especially on the back of the recent Garda equal pay case, saying: “We’re now going to extend that claim, throughout the civil service and other government departments and we believe we’ve a good chance of success.”
He may well be right, given that it's easy for politicians to disburse money that's not theirs.
The politicians got their cut of the benchmarking bonanza and it was a confirmation of a reality in Ireland that those who can grab hold of the public megaphone, can generally get their way, whatever the facts and reality.
