Managers, professionals and associated professionals: in the last year this category averaged €1,218 per week
Clerical, sales and service employees:these workers averaged €484 per week
Production, transport, craft and other manual workers:these workers averaged 509 per week
The manager and professional category makes up 38 percent of all employed.
The index below follows average weekly incomes between 2010 2nd quarter to 2017 2nd quarter.
Since the start of thios CSO series – 2010 2nd quarter – we see the average weekly incomes of managers and professionals rising by 18 percent (or €188).Clerical and sales workers – essentially ‘white-collar’ workers - saw their weekly incomes rise by 5 percent (€24), while manual workers received only a marginal increase - €3.
In the last year, however, the rise in managers/professionals’ weekly incomes has eased off a bit with others experiencing an increase.But they have a long way to go.
We should be cautious about the numbers above for we may be seeing a compositional effect at work.Over the seven years covered in the data, it may be that new jobs have been created for managers/professionals with higher pay rates – not that everyone in this category back in 2010 received, on average, an 18 percent pay increase over the seven years.Nonetheless, it shows a widening of the gap.
While many would immediately refer to wage-equality issues (and these are legitimate), we have to look under the hood, so to speak.Clearly, professionals are in a stronger position vis-à-vis their employers to leverage their skills in order to bargain a higher rate – especially if there is a shortage of their skill in the market.Other workers may not have this leverage; and with collective bargaining coverage falling, most cannot rely on strong trade union representation.So what leverage do they have?
So while this may be one measurement of wage-inequality, we should note that Ireland’s higher paid are not very highly paid when compared to our EU peer group.We can get some insight into this by comparing the incomes by decile.
Starting with the 4th decile (that is, the fourth lowest income group – this is the decile where income from work exceeds social transfers in Ireland), we lag behind the mean average of our EU-peer group by a considerable amount.This gap lowers the higher up the income scale we go.But even in the top income groups – where we would find managers and professionals – Ireland is still below average.
So if managers and professionals are more successful in leveraging their advantages in the workplace, their incomes are not above-average by our peer-group standard.
What lessons can we draw from all this?
First, while wage-inequality – within Ireland or in European comparison – is a concern, there are other important measurements:namely, the share of labour income in the economy (discussed here) and the inequality in wealth assets – real and financial property.
Second, the main concern is not that professionals can leverage their workplace advantage; it’s that white and blue collar workers have little power.This inequality in bargaining power is a primary determinant in wage distribution among the workforce.
This lead us to the inequality of power in the workplace of which the wage inequality outlined above is a result.
To address that inequality, there must be renewed emphasis on collective bargaining and challenging employers’ ability to ignore their employees.This is one of the biggest issues for trade unionists and progressives and something this blog will spend a lot more time on in the New Year.
It is amusing to hear talk about learning the lessons from the crash. Take housing: we entered the crash due to a housing crisis, with public subsidies in the form of tax reliefs being a contributory factor in the unsustainable boom. What do we have now? A housing crisis with the government providing public subsidies: the help-to-buy scheme, capital gains exemption and postponement of the property tax revaluation.
How about banking culture; in the aftermath of the bank guarantee and public bail-outs all the conversation was about the banking culture. Fast forward a few years – with the tracker mortgage scandal and the Paradise Papers – and what are we talking about? The banking culture. And what is the government doing? Privatising AIB.
One more example: tax cuts. Prior to the crash governments slashed just about every tax it could: income tax, corporation tax, capital taxes, PRSI – leading to an over-reliance on property-boom revenue. When the crash came, the reduced tax base was exposed. What is happening now? The Government is cutting just about every tax it can: income tax, capital taxes, USC, PRSI, corporation tax. This is reducing the tax base and . . . well . . . hmmm.
It’s one thing to fail to learn lessons. It’s another to forget lessons we never bothered to learn. That takes skill.
There is one lesson that doesn’t an airing – automatic stabilisers. The principle stabiliser is unemployment benefit. When people become unemployed they are automatically entitled to unemployment benefit (assuming they have enough contributions). This protects people from the loss of work income and being driven into penury.
But this payment also helps stabilise demand in the economy by providing people with a temporary benefit to allow them to continue to purchase goods and services, thus protecting domestic businesses.
Hence, automatic stabilisers.
Ireland’s automatic stabilisers are quite weak compared to our peer group. The replacement ratio measures unemployment benefit as a percentage of the previous take-home pay.
Ireland is at the bottom of the pile apart from the UK.If someone on the average wage (€34,700) loses their job, unemployment benefit here would only make up 34 percent of their previous take-home pay.Most other EU countries are substantially above this – averaging 56 percent of previous take-home pay.
If Irish unemployment benefit were to rise to our peer group level, benefit would rise from €188 per week (in 2015) to €306 per week – an increase of €118, or 63 percent.
As this is benefit, it would be time-limited.In Ireland, benefit runs out after six to nine months.Unemployment payment after that is means-tested.
A strong, pay-related unemployment benefit would protect household finances when a job is lost which, in turn, would keep demand up – consumer spending - protecting jobs and wages.At the macroeconomic level, it is a defensive measure designed to buy time – time to put in repairs such as replacement businesses, retraining and re-skilling and other counter-cyclical measures - and get the economy back on its feet.
This could be crucial given the prospect of Brexit impacting on particular industries (e.g. food) and in certain regions (e.g. border counties).If jobs are lost, a strong pay-related benefit could provide time to cities, towns and rural areas rather than just experience a sudden and sharp contract as households finances melt down to the current low level of unemployment benefit.
Another feature is that unemployment benefit is paid out of the Social Insurance Fund.If that Fund is in surplus – as it is now – then benefit payments made do not require additional borrowing.That’s why it is important to build up the Fund during the sunshine days, in preparation for the rainy days.
Expenditure on unemployment benefit has fallen considerably in the last few years as fewer people lose their jobs.
Unsurprisingly, expenditure rose dramatically between 2007 and 2009 but started to decline afterwards.Expenditure in 2016 is now below 2007.
How much would it cost to raise unemployment benefit to the average of our peer group?This is a crude estimate, using the percentage increase in the example of the single average income person above.Applied here, it would cost an additional €220 million.However, there would be benefits to the Exchequer:higher income tax, consumption taxes, etc.
This could be paid out of the emerging surplus.In 2016, the Social Insurance Fund went into surplus - €466 million.In previous years, the Exchequer had to make a subvention to bring the Fund into balance.However, we need to drive up the surplus in the years ahead, especially to pay for pensions.
So it would be far more prudent to increase the social wage – or employers’ PRSI – to pay for the increased unemployment benefit.An increase of ½ percent – spread out over three years – would not only cover the increase, but would add to the surplus in future years.Given that Ireland’s employers’ PRSI is ultra-low by our peer group standard, this would still leave us lagging.
If we are going to learn the lessons of the boom-and-bust period, one of those lessons is to strengthen our automatic stabilisers.Now is the time to do that when wages, employment and profits are increasing.
Building a strong, European-style social protection system can not only assist households in times of need but help shield us from the inevitable down-turns in the future.