Tuesday, 2 March 2010

Public sector labour costs

Over the past year and a half, a number of commentators have claimed that wages in the Irish public sector are high by international comparison. How true is this? Not very, when compared with other European countries. Over at Notes on the Front, Michael Taft examines the data and finds that,Irish public sector labour costs are below European averages. You can read his post here.

12 comments:

Anonymous said...

It would be interesting to see a wider debate on this.

Joseph said...

Interesting to see where Greece is and the cuts their public sector workers are about to experience. What's that old song line... "it's the poor what gets the blame"?

Mack said...

Guys - the headline and introductory paragraph are misleading. Unless it's a typo in the linked article Michael is comparing Public Admistration and Defence Labour costs and not Public Sector wages i.e. the figures include employer social security contributions which vary across the EU and the figures are limited to two subsectors of the public sector (one of which is relatively tiny in Ireland).

Michael Taft said...

Mack – I would urge you to read the post. The title of the post is about labour costs. That’s what the post is about. Apart from the title, labour costs are referred to on eight occasions in the post. How is that misleading? In the post it is explained why NACE L is used – to ensure that private sector wages are not included. The post also makes it clear that labour costs include employers’ social contributions. I have left a comment on the linked blog on this issue that you might find instructive. As NACE L represents approximately 1/3 of all public sector workers I am at a loss at what is the ‘relatively tiny’ that your refer to, or what are the ‘two subsectors’ that you mention – could you elaborate on this? Do you have any numbers or analysis to show where I have misled?

Mack said...

Hi Michael,

I don't think you've misled, and I hope I didn't cause offence. I was refering to the post on this website -

"Over the past year and a half, a number of commentators have claimed that _wages_ in the Irish public sector are high by international comparison. How true is this? Not very, when compared with other European countries"

The headline and the paragraph mix and match wages and costs. A lot, if not most, people reading that won't be aware that there is a difference or what the significance is. (Or that 'costs' aren't costs to the state as tax is paid to the state).

And this

_Public sector_ costs

The figures you quote are limited to public administration and defence. The bulk of our public sector budget goes on Education and Health spending. Defence is a tiny part of the Irish public sector and many of the nations being compared to in Europe have much larger militaries some of them currently fighting wars.

The figures you supply also show labour costs as being higher in the UK, I don't think this squares with reality (as comparison of pay scales or job adverts on the internet would show).

Michael Taft said...

Mack - I accept you weren't being 'offensive' and I hope that I wasn't either. As to the public sector - Public Adminstration/Defence, Education and Health - the CSO shows that employment is broadly broken down on a 1/3 each (with Health slightly higher). So Public Adminstration/Defence is a large category of public sector workers here.

As to the UK - this is 2007 data and I used the average exchange rate from Eurostat. Yes, labour costs will have changed - but that is as much a function of measuring currency movements, as it is labour costs. To square that, one has to use PPPs - but I don't have 2009/2010 levels to make that comparison.

At the end of the day, no matter how we debate particulars, the overall is that labour costs (direct and social wage) are lower here than most other EU countries - in some cases significantly so.

Mack said...

Michael -

"At the end of the day, no matter how we debate particulars, the overall is that labour costs (direct and social wage) are lower here than most other EU countries - in some cases significantly so."

Yes this is true. But does it really mean anything? I.e. If the government were to increase Employers PRSI and decrease wages our measured costs could stay the same while the actual net cost to the exchequer fell significantly (and vice versa).

The social wage in Ireland, if you were to include health provision and social security provision for workers made temporarily unemployed and the like is incredibly poor given the high marginal rate of taxation that applies here...

Michael Burke said...

The OECD PPPs are to be found here.

These are for individual consumption, that is based on the goods and services actually bought.

http://stats.oecd.org/Index.aspx?datasetcode=SNA_TABLE4

So an Irish € only buys what 82cents buys you in Germany and is equivalent to £0.64, and so on. This significantly reduces the real relative wages of Irish workers.

Absent comprehensive data, which could support or refute outlandish claims as to Irish pay, a subsectoral analysis, comprising one third of the public workforce is entirely valid.

Indeed, it is inconceiveable that the ratio of pay in 'public administration and defence' to the remainder of the public sector could be significantly lower in Ireland than in the rest of the EU. In an era of labour mobility, the EU's teachers and health workers would be flocking to Ireland if that were so. In fact it is frquently alleged by many commentators (who hold to this fiction of bloated public sector pay) that there are restrictive hiring practises. If such existed, they would be precisely concentrated in the 'public administraion and defence' spheres, rather than, say, health workers. This could only mean that in terms of pay, the 'paad' sector Michael Taft is obliged to use, would be unrepresentative only because its pay in Ireland was higher than the EU norm.

If the issue of competitiveness is being discussed, insofar as labour plays a role in that calculation, costs are precisely the place to begin, not pay, since it is immaterial to the employer whether the costs are direct ones (pay and pensions) or indirect ones (taxes and levies).

In reality, there are a myriad of othr factors which comprise 'competitiveness'.

Mack said...

Michael Burke -

"If the issue of competitiveness is being discussed, insofar as labour plays a role in that calculation, costs are precisely the place to begin, not pay, since it is immaterial to the employer whether the costs are direct ones (pay and pensions) or indirect ones (taxes and levies)."

The employer in this case is the state - they pay employer taxes directly to themselves. The real cost of employing a public employee is their disposable income net of taxes.

Employer taxes vary across Europe, thus using costs prevents a direct comparison of wage levels.

---

You could make a strong argument based on PPP and the services purchased by the 'social wage' (although personally I regard the benefits actually recieved as payment rather than taxes paid to the state) that Irish public sector workers are worse off than their EU counterparts.

But are you suggesting that if a country has an issue with high prices, other workers should pay more tax to subsidise yet higher wages for those paid from the public purse?

Proposition Joe said...

@Michael Burke

An argument based on PPPs is a weak one I think, due to the feedback loop between wages and prices.

If wages were infinite in this country, would that be OK if prices were also infinite?

Prices chase wages which chase prices. A high level in the one will inevitably cause a rise in the other, but high levels in both does not mean we don't have a competitiveness issue.

Oliver Vandt said...

@ALL
The institution that drove the prices bubble, Anglo/Nationwide, needs to be cut loose before it destroys us. Civic society must speak out on this. Excellent article by David McWilliams.

http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-moneysucking-anglo-is-our-financial-stalingrad-2086182.html

Civic society must also speak out against using scarce Garda resources, against whistleblowers, to protect relations between fractitious coalition partners, while there are 50 unsolved gang murders.
http://www.herald.ie/national-news/ahern-wants-to-clear-his-name-in-sargent-probe-2084357.html

Michael Burke said...

@ Proposition Joe

If we are assessing the relative real incomes of Irish workers then the PPP 'argument' is not a weak one. It is a fact.

Therefore Ireland has both below-average wage levels for its EU peer group, and higher prices.

As has been forcefully argued here
http://www.progressive-economy.ie/2010/02/competitiveness-myths.html

relative rates of pay comprise just one factor in establising competitiveness. From the foregoing it should be clear that any loss of competitiveness arises not from pay but from other factors, in my view primarily from insufficient investment.