Last year, I pointed out an important distinction between public and private sectors. In downturns, the private sector tends to make its adjustment by cutting hours worked, not pay rates. With permanent contracts in place for the vast majority of its staff, Ireland’s public sector is not in a position to do the same. Therefore, when looking to make savings, it has to adjust pay rates, not numbers. (Indeed, given the severity of Ireland’s private sector jobs depression, even if the public sector were in a position to cut jobs not rates, it probably would not want to do so.)
However, the apparatus for how the public sector labour market works means that adjustment is like moving a liner at sea. Things happen very slowly and even after the captain changes course, the liner will continue to drift in the previous direction for some time. Nowhere is this more evident than in the adjustments to payroll made by the public sector, when compared to the rest of the economy.
Earlier this month, the CSO published figures on hours worked and earnings, for different sectors of the economy, for the second half of last year. The graph below shows the adjustment made by each sector in the third and final quarters of 2009. The final quarter will not necessarily be representative of the rest, as it will include bonus payments, for example – but for that very reason, it’s important to look at it as well as a more regular quarter like Q3. The percentage given is the change in the total paybill in a quarter compared to the year before.
A very clear picture emerges if one thinks about the economy in four parts:
- construction, which is in severe adjustment
- finance, which is in limbo (or purgatory or something like that)
- the public sector (civil service, education, health, Gardaí, army, etc)
- the rest of the economy (manufacturing, ICT, professional services, etc)
The adjustment in the construction sector’s paybill in the second half of 2009, compared to a year previously, was a pretty astonishing 36%. In finance – perhaps initially surprising but on reflection maybe just as one might expect of a sector in limbo – there had been no change to its overall paybill.
The telling figures come from looking at the public sector and the rest of the private sector, however. In the private sector, the adjustment in the wage bill has been on average 13%. Only in manufacturing did it differ substantially – there the adjustment has been just 9%. However, in the public sector, there has – despite all the cuts – still been no downward adjustment in its overall pay bill. Indeed, the pay bill actually increased by 1.4% in the third quarter.
In one sense, you can’t blame the Minister for Finance. In relation to public sector pay, he’s done all that could be expected of him in a short space of time. In particular, he has made inroads into two unsustainable inequities in the Irish labour market, by making public servants contribute slightly more to their pensions and by bringing their core pay slightly closer in line with their private sector counterparts.
But the CSO figures show that this will not be enough. They highlight how important transformation – rather than additional incremental reform – of Ireland’s public service is, if things are to change enough to keep the Government deficit and debt at sustainable levels, and if we are to prevent this from ever occurring again.
The central determination of pay scales and employment numbers – combined with a culture of increments – has left the public service with a complete disconnect between what they do and how they pay for it. Ireland needs to have a public service populated by a new type of organisation. That organisation will understand what benefit it brings to society, and thus will know what money it needs to raise to fund its service. And the organisation will have much greater control over accessing the skills it needs. This means breaking down barriers between the public and private sectors and indeed within the public sector. It also needs to be able to reward those who excel at their jobs – and only those.
So much of this is elementary to those in the wider economy who are responsible for the financial and human capital at their disposal. And yet, as the CSO figures show, the public service remains in a different world.