POSSIBLE THREAT TO IRISH ECONOMY

Statistics show the wage gap between private and public sector workers has increased to about 40% causing parallel worlds to develop. Linda Pearson reports.

A recent report from the Central Statistics Office (2006), based on the results of the new National Employment Survey, 2003, shows that earnings in the public sector exceeded those in the private sector by about 40%. According to the CSO in 2006 alone average weekly earnings in the public sector (excluding health) rose by 4.8%.

CSO surveys and other research work have therefore clearly indicated that workers in the public sector fare much better than their counterparts in the private sector.

Wage Gap

This wage gap has been the topic of conversation for many years in Ireland and according to recent statistics Irish public service salaries have risen by 59% in the past five years since 2001. When other aspects of pay and non-monetary benefits are taken into account, the rewards enjoyed by public sector workers increases further. These aspects include the valuable pension schemes enjoyed by public servants, variable pay benefits in the private sector, working hours, annual leave entitlements, and the value placed on job security in the public sector. In comparison, security of employment is much less promising in the private sector where redundancy and restructuring are everyday realities.

The Independent Business Organisation (ISME) recently called on the government to address in 2007, this major issue they believe is affecting the economy. ISME Chief Executive Mark Fielding said it’s important that, “public sector pay be brought under control as a massive 47% gap has been allowed to develop between the private and public sector in the last number of years, due mostly to the now infamous benchmarking process, constituting a simmering but explosive threat to the economy.”

Parallel Worlds

There is the argument that the wage gap is unsustainable and will lead to spiraling wage demands in the private sector, thereby further undermining the economy's competitiveness. A strong public sector is an important component of any modern economy as long as it is efficient, cost effective and focused on delivering value for money.

“Public sector pay resembles a runaway train, stoked by the unions, with nobody capable of putting on the brakes. The massive increases awarded have led to an unfair two tier parallel wage negotiation system, which favours the public sector and encourages an inflationary psychology,” said Fielding.

A report by Davy Stockbrokers in 2005 found that public sector pay was, on average, about 20% higher than private sector pay. The average public servant now earns more than €45,000 a year, compared to the average industrial wage of €31,000.

Benchmarking

Since 1987, Irish wage movements have been shaped mostly by Social Partnership Agreements which focus principally on incomes, fiscal, social, economic and competitiveness policies. A benchmarking exercise was also set up as a response to demands from unions representing public sector workers that their members be given wage increases to match what they perceived to be available in the private sector.

In 2000, the Public Service Benchmarking Body (PSBB) was set up to establish fair comparisons between the pay of public service workers and similar groups in the private sector. The public service employer and the Irish Congress of Trade Unions have each made their opening submissions to the PSBB, which is undertaking its second major review of public service pay and is due to report in 2007. Determining the value of pension provisions is proving to be one of the more contentious issues. When the report is issued in the second half of this year, it will represent a set of pay recommendations for the vast majority of public servants.

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