Sharing the pain?

The Indo reports that 340,000 Irish public sector workers will be celebrating receiving their annual increment salary increases this year. At the same time, Irish private sector workers stare into an abyss of pay cuts, redundancies and government tax hikes – in part to fund these increases.

But, somehow, it’s not a pay rise! By the way, for any public sector workers reading, these types of increases are unusual in the private sector. In the private sector you normally either get a pay rise or you don’t. Unlike many in the public sector, you do not automatically get an increase in your salary just for working another year, with a pay rise on top of this. You may get a cost of living increase, and when you get promoted (which is certainly not normally annual), you do tend to get bigger pay rises – as you are effectively doing a different, more senior job. In the public sector you may jump onto a more generous pay scale on promotion. In the current environment, in order to save jobs with companies struggling, many workers are taking pay cuts, others less fortunate have been or will be made redundant. Finally – as private sector workers have always had to contribute to their own pensions, these rises at a time when the tax bills of the fortunate are soaring seem deeply inequitable.

  • Would it be the same situation in the North? Were there any pay-cuts up there? Are there any plans for London to cut back number or increments? I seem to recall quite a substantial percentage of the north’s workforce are in the pay of the British government. What I will say is that public sector workers in Ireland or Britain were not the cause of this financial mess we’re in at the moment. It was the private sector championed by all the mainstream media who were saying governments should stay out of the sanctified market, this oracle of goodness, and look what happened.

  • Mack

    Southerner –

    ” It was the private sector championed by all the mainstream media who were saying governments should stay out of the sanctified market”

    That’s a bit of a sweeping statement. The Irish banks certainly caused the problem in Ireland with excessive borrowing on the wholesale markets. Property speculators and developers contributed in a big way too.

    The average worker whether in the private or public sector didn’t cause the crisis but many did benefit from much higher salaries, lower taxes. That’s not the point. It’s the average private sector worker who is bearing the brunt – higher taxes, pay cuts, redundancies.

    If public sector workers were to forgo these rises (which is really only fair), it may do a number of things

    1. Mean less tax increases for all workers.
    2. Mean a smaller budget deficit (lower long term taxes, or higher long term government spending).
    3. More public sector workers would keep their job – if either the government makes cuts, or the IMF force them too.

  • Sneakers O’Toole

    250 million Euro between 340,000 workers represents an average pay “bonanza” of a 14 Euro a week increase. Many will presumably get less than this.

    I’ve had jobs in the past in the private sector where my contract stipulated a minimum pay rise every year, and it was larger than 14 Euro a week. The difference was, like many public sector workers, the jobs I have are generally in workplaces where most staff are in a union.

    Private sector workers shouldn’t resent public sector workers for having better conditions, they should try to get these better conditions themselves.

  • Mack

    Sneakers O’Toole –

    Private sector workers shouldn’t resent public sector workers for having better conditions, they should try to get these better conditions themselves.

    When both the state, and the general economy (and thus private enterprise) can support those better conditions those are admirable sentiments. At the moment however, the fact is the state is drowning in a sea of debt, and personal taxes are rocketing upwards.

    Public sector wages from a large part of government expenditure, increasing them simply shifts the burden onto private sector workers – who are having their salaries cut.

    Don’t forget the impact of compounding in your calculations, by the way. €250 million in the first year, increasing there after (to €750 million by year 3).

  • This is classic divide and conquer stuff from the establishment press.

    There is no division between public and private workers, but one is being created. I wonder why…

  • Mack

    Red Avenger –

    There is an element of truth in that – pointing out issues like this will ensure that large numbers of workers in the private sector will vote for FG rather than Labour.

    This story originated from Leo Vradkar of Fine Gael – and it’s a sound strategy for them. Ultimately no-one represents the non-unionised private sector worker, and as such they are being forced to bear the pain by default. Not Ireland’s high flying property, banking and trade union oligarchs.

    The best way to counter this kind of pressure, is to ensure the system remains equitable for all workers. Public sector workers earn on average around €50,000 in Ireland while private sector workers earn on average €36,000 (and falling). In these circumstances, with a fast rising debt and tax burden public pay rises are untenable – less tax rises or even tax cuts which benefit both public and private sector workers would be preferable. Do you agree?

  • nineteensixtyseven

    Definitely an element of IBEC and the rightwing press deflecting public anger at the government, the financial oligarchy and construction interests on to public sector workers already landed with an increased pension levy.

    It isn’t helpful to talk in aggregates here, Mack (“Public sector workers earn on average around €50,000 in Ireland while private sector workers earn on average €36,000 (and falling).”) because that figure obviously includes senior civil servants, government ministers and other highly-paid bureaucrats while the private sector figure is going to include (at the other extreme) low-paid and casualised service sector employment.

  • willis

    Mack

    “Ultimately no-one represents the non-unionised private sector worker, and as such they are being forced to bear the pain by default.”

    I’m sure the trade union “oligarchs” like me would be very happy to represent them if we could.

  • Mack:

    Fair points. If you cut tax though, how can you provide any sort of social safety net?

    In principle, I do agree that people need have money in their pockets. But these aren’t pay rises, they are increments. Yes, I know you don’t get them in the private sector but a decent level of purchasing power among public sector workers is not bad thing.

  • Mack

    Nineteensixtyseven –

    I disagree, plainly lower paid workers are being asked to pay higher taxes to fund higher wages for those who already earn more. The higher paid earners salaries are subjected to political rather than market forces, and at a time when market forces are diminishing the salaries of the lower paid workers – their taxes are being hiked to help meet the increased burden of public spending that is – unbelievably – still increasing!

    Incidentally private sector wages would also include sales men, executives, CEOs and the like who would drag the average up. Contrary to myth not all public jobs are high end, high skilled jobs. Ronan Lyon’s has a good entry about how the gap increased in the good times between public and private workers (with public sector salaries rising faster), now we hit a downturn and it looks like the gap is widening again (with private salaries falling, and public salaries rising).

    http://ronanlyons.wordpress.com/2009/02/04/public-sector-pay-in-ireland-the-e50000-question-its-not-that-difficult/

  • Mack

    Red Avenger –

    Tax cuts are probably not on the agenda – even without public pay rises (and I disagree that they aren’t pay rises – if I was given an increment today by my boss, I think I’d have the courage to call it a rise). But the scale of the rises may be reduced.

    Despite huge tax rises, tax revenues have collapsed back to levels not seen since maybe 2002 or 2003. The government will take in €30-34bn this year, but has spending commitments of around €60bn. Which includes €21bn on very generous (by UK standards) welfare payments.

    Because of this (and the deeply immoral socialism for rich people that is the banking bail out), Ireland’s national debt is going to sky rocket. That means less money to distribute to future workers and there families via public spending, to public sector workers via higher wages or just plain higher taxes for all workers in the future. Giving pay rises now is akin to parents who’ve just lost their jobs increasing their children’s pocket money and putting on the credit card. Great for the kids for now, but eventually the chicken’s will come home to roost, and it makes the problem and thus the consequences, that much worse.

  • nineteensixtyseven

    I take your point and the fact that we are operating within a capitalist economy means that there will be a downward pressure applied to wages in the private sector as profit margins decrease. I’m just pointing out that it is clearly a ruling-class attempt to deflect the anger of working people away from the real culprits and the system itself on to their fellow workers in the public sector. In terms of high-paid bureaucrats, by all means attempt to cap their pay but it is not fair to scapegoat low and middle-income workers in the public sector for the failings of the government, private finance and industry. Even from a purely economic perspective it will have an adverse effect on demand to start cutting salaries which, in an economy driven in large part by private consumption, is the sort of short-term response to declining profits that ends up causing further crises.

  • Mack

    Nineteensixtyseven –

    “I’m just pointing out that it is clearly a ruling-class attempt to deflect the anger of working people away from the real culprits and the system itself on to their fellow workers in the public sector.”

    The average public sector worker is a pawn in this just as much as the average private sector worker. There are three sets of Oligarchs in Ireland (4 if you include FF)

    1. The bankers (proof – banking bailouts)
    2. The big property developers (Golden circle, IPDF, CIF – proof home choice loan scheme, tax breaks, galway races tent)
    3. The Public Sector elite – Unions elite (proof – senior union officials taking up board positions on the Central Bank of Ireland, Benchmarking, private sector CEO-like salaries imitated at public expense).

    The problem is #3 can hide behind the average public sector worker. Given they are well-paid however, I don’t see any need for a pay rise.

    ———–
    Also – this is crony capitalism not real capitalism. Under any economic system, if the size of the economy contracts there is simply less resources to go around. Capitalism has done reasonably well in terms of expanding the total size of the pie. The business cycle has been with us a long time, indeed creative destruction is essential to capitalism.

    It’s thanks to creative destruction and the innovation that it allows that living standards for all have risen so much higher in capitalist countries.

  • nineteensixtyseven

    “The average public sector worker is a pawn in this just as much as the average private sector worker”

    Of course

    “Also – this is crony capitalism not real capitalism”

    Could you pinpoint this apparent era of ‘real capitalism’ because I’ve always had trouble finding it?

  • Mack

    Could you pinpoint this apparent era of ‘real capitalism’ because I’ve always had trouble finding it

    Lol! That’s political corruption for you though, it can occur under any economic system unfortunately. It’s essential that it’s rooted out, regardless of what economic policies are followed. There are lots and lots of examples of successful non-oligarchical capitalism in action, across the world today.

    It’s obvious that this behaviour is corruption. No serious pro-market economist would regard this as healthy. No one, except those in their pay, would argue for oligarchies.

  • Mack

    Willis –

    Would you urge your members to forgo pay rises, or take a pay cut – if it meant less well off workers in other industries kept more of their wages? Or if it meant there was more scope for government to reduce the tax burden on struggling companies (employers prsi for example). If so, that’s great.

  • Sneakers O’Toole

    Mack, I hadn’t forgotten about the effect of compounding. The raises, as I understand them, are 250m this year, 250m next year, 250m the year after; a total of 750m. This equates to around 0.15% of Irish GDP per year for the next 3 years.

    Public sector wages do form a large part of Irish government expenditure, but the Irish public sector is one of the smallest in the OECD. This wage increase isn’t going to have a huge effect on national debt.

    As I said above, this wage increase is a fraction of a percent of Ireland’s GDP. The cost of the banking bailout by comparison is estimated by the IMF to be 13% of GDP- about 100 times the size of these wage increases.

    Abolishing this pay rise would indeed (slightly) improve the public finances. But I would rather reserve my anger at the people who have caused the real damage to the economy, rather than allow the press to exaggerate the effect of the everyday cost of running the country and stoke up resentment among the ordinary five eighths by using emotive language like “bonanza” to describe this.

  • Pure free-market capitalism in theory has never really been applicable in reality. British capitalism was only free trade in that it had few manufacturing tariffs in the nineteenth as no one could compete with it before the 1870s. Furthermore, it was built on an effective monopoly on colonial raw cotton materials.

    Again, free market capitalism theory like classical liberalism struggles in practice because it is essentially international and the nation-state was never intended to be a factor in the process of production (except in the writings of people like Friedrich List), the basic unit was the individual capitalist or firm and the factors of production were to be free to cross national boundaries to facilitate a global division of labour. Britain’s dominance was challenged by the US and Germany after 1870 who used tariffs and in Germany’s case, like with most continental economies, the state was a big player through railway investment and providing credit. The Depression of the 1880s posed further problems because the response to falling profit margins was a combination of imperialism and monopoly capitalism with the rise of Trusts in American and Cartels in Germany. Production and capital became increasingly concentrated in a way that was in no means conducive to free competition and had a symbiotic relationship with the state. Political corruption or, more widely, the use of the ostensibly neutral state in the interests of certain groups of capital is no new development or no surprise. It’s the same now with AIB (the Fianna Fail Bank!).

    Capitalism needs the state. It needs it to help secure markets, to act as a lender of last resort, to nationalise the banking system when it falls apart, to enforce basic property and contract law. Capitalism can never act in a political vacuum and as such is always open to corruption and oligarchical tendencies. In extreme cases, when capitalism and democracy are so incompatible and the interests of populations and of capital are blatantly antagonistic, capitalists need the state to provide the coercive muscle to suppress democracy. Just look at 1973 in Chile, Suharto’s imposition of neoliberalism in Indonesia with the ‘Berkely Mafia’ or even Thatcher’s use of the police-force to break the unions in Britain. Capitalism and politics are umbilically linked.

  • Mack

    Sneakers O’Toole –

    The banking bailout while huge, is costed separately from the fiscal problem – which is also huge.

    As regards your figures – I don’t think that is the case. My understanding would be that the cost is, €250m this year, €500M next year and €750m the year after (as the rises are compounded as workers move up the scale). This represents a minimum total cost of at least €1.5bn. That would probably equate to about 1% of Irish GDP (which is falling massively) taken over 3 years.

    The budget deficit is likely to be around 12-13% of GDP this year, and is expanding so there is little hope of it not being greater next year. This rise is far from insignifcant.

  • Sneakers O’Toole

    Ooops- I should’ve refreshed the thread and read it all before I posted that.

    I didn’t say much new there.

  • Mack

    Nineteensixtyseven –

    Capitalism needs the state.

    Yes. ( to enforce basic property and contract law , provide public goods)

    It needs it to help secure markets, to act as a lender of last resort, to nationalise the banking system when it falls apart,

    Well that’s they our economic and political system has worked. But that aspect of it isn’t capitalism. Socialism for rich people maybe :- )

    Nassim Taleb has some good ideas on how the financial markets should be structured so as to prevent this type of mess recurring and giving creative destruction free reign to work it’s magic where it can.

    http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html

  • Mack

    Nineteensixtyseven –

    Meant to add this

    Capitalism and politics are umbilically linked.

    Yes. Economics in practice and politics in practice are umbilically linked.

  • Sneakers O’Toole

    My mistake, your maths regarding compounding was correct Mack.

    It’s up to the government now to arrange lower increases with the workers and their unions if they can’t afford it. They would also have the job of explaining why they can’t give the promised €1.5bn rises to the people that run the country, but can give more than ten times that amount to the bankers that ruined it. I don’t envy them.

  • The Raven

    One wee quick note:

    Would the public sector take a pay cut, refuse an increment, etc?

    I don’t know – nobody has asked them.

    Perhaps someone should? Perhaps instead of the usual “I’m going to reform the public sector” tub thumping, some one should actually sit down with them and *ask* for sacrifice. Turkeys don’t vote for Christmas. And 14 euro a week might be fuck all to a senior civil servant – but it’s a shitload to an AA.

    But here in the north, surely its worth a try?

  • nineteensixtyseven

    Mack,

    I don’t know about you but I live in practice not in theory.

  • willis

    Mack

    We already have. Out-sourcing, off-shoring, competitive tendering etc. I earn less in real terms than 10 years ago and there are lots like me.

    We had to put up with it because the alternative was unemployment.

    Perhaps now it is time for those who destroyed manufacturing jobs to make a fortune to feel a little pain?

    I’m sure you would agree.

  • Lots to mock at above. Rather like the guy who jumped from the fortieth floor, and called out (as he passed the twentieth floor) “I’m all right so far.”

    — No. Not fair, Malcolm, not fair.

    — OK, OK: nothing but complaints today.

    [Notice the Joycean punctuation. Only quality stuff here.]

    All that aside, I’m surprised nobody has reminded us of the story Ian King has in his [London] Times Business Commentary.

    Now, normally, to spare the bandwidth, you’d get just the hot-link. I feel this one’s just too good:

    A passage to India, but would you go?

    It’s fashionable, this side of the Channel, to sneer at those hot-headed Gallic types, with their quaint penchant for blockading ports, manning the barricades and downing tools at the drop of a beret.

    Once in a while, though, militant French workers may have a point. Carreman, a French textiles company, has just offered nine of its workers a choice of redeployment to India, accepting a 96 per cent pay cut into the bargain, or being sacked. The French workers currently earn €1,800 a month, but, at Carreman’s Bangalore factory, this would be reduced to €69 per month for a six-day week. Not forgetting an annual bonus of one month’s pay and medical insurance.

    Understandably, the workers have reacted with a mixture of “anger and stupefaction”, according to their union — with not even the offer of free aircraft tickets and a one-off €1,000 bonus proving sufficient incentive for a passage to India.

    In fairness to Carreman, François Morel, its managing director, insists that he was legally obliged to make the offer before making the staff redundant, arguing it is not his company but the law which is an âne.

    That well may be true. But these kind of antics certainly go some way to explaining the sinister new French phenomenon of “bossnapping”.

    It’s the way he tells ’em.

  • Mack

    nineteensixtyseven –

    I don’t know about you but I live in practice not in theory.

    Yep me too, but it’s pretty common for supporters of other economic systems to indict alternative economic systems based on political (as opposed to economic) actions of corrupt leaders. If that’s not too abstract!