Here We Go Again

I have slightly edited this post from a previous version which mistakenly took a wrong quote from the Irish Times.

It’s open season on public sector workers again. The Sunday Independent has a front-page shock-horror headline – €1bn pay rise bonanza for public sector. Other commentators and employers' spokespersons have been having their go's as well.  But then there's Stephen Collins. Stephen has a statistic.  You've been warned:

'Average earnings in the British public service were €634 a week on the last available set of figures by contrast to €912 in Ireland.'

 Let’s go through this assertion with that most inconvenient of entities – facts.

Eurostat has put together a comprehensive labour cost database for 2008. I will use the public administration category (this is wholly public sector; education and health categories measure private sector pay as well). It shows that for each employee in full-time units per year, it cost the Irish Government €57,952 to hire public sector labour. In the UK it cost €51,283. The gap in income just got less (for you stat-wonks, Stephen’s gap of 44 percent just shrank to 11.5 percent).

Of course, as we all know, when comparing between countries – particularly between countries with different currencies – it is helpful to use power purchasing parities (PPP). We have to ensure we’re not measuring currency fluctuations or different living standards. Here’s an example of what happens when you don’t factor that in.

Eurostat shows that the statutory minimum wage in the UK (on a monthly basis) was €1,242 in 2008. In 2009 it fell to €995. Did the UK government actually cut the minimum wage by 20 percent in that year? No, they actually increased it by 4 percent. So why did it fall in Euros?  Sterling fell.

While PPP is not the conclusive measurement, it at least takes into account currency and living costs. So what do we find then? It cost the Irish Government €50,007 (PPP) to hire public administration labour per employee in full-time units. It cost the UK government €51,006 (PPP). The gap has just disappeared.

There can be a problem, though, with full-time units per year insofar as it can depend on measuring hours worked and the relationship between full-time and part-time pay. So let’s look at another measurement: labour costs per hour. Here the relationship between Irish and UK rates vary considerably with annual labour costs.

In Ireland, public administration costs €35.72. In the UK it costs €25.25. That appears closer to Stephen’s calculation. However, when currency and living standards are adjusted, in Ireland public administration costs €30.82; in the UK, €25.11. The gap starts to diminish again.

But there are a couple of factors that Stephen conveniently leaves out.

First, the category we’re examining includes ‘defence pay’. Though I don’t have the numbers at hand, it’s reasonable to assume that defence personnel make up a larger proportion of the British public administration payroll than it does in Ireland. This can skewer the overall average as defence pay is, unsurprisingly, lower than average public administration pay. In Ireland defence pay is -16 percent below average public sector pay. If this holds in the UK, then we’d find UK labour costs rising higher if defence pay were excluded.

Second, the gender pay gap in the public sector is much smaller here than in the UK (which is a wholly good thing). In the UK, women earn only 82 percent of average male earnings; in Ireland, it is 92 percent.

If these were factored in, the gap between the two countries would narrow even further.

It is noteworthy that Stephen uses the UK as the comparator. The UK is a bottom-feeder in terms of social outcomes – even worse than Ireland. In terms of relative poverty, the Gini co-efficient (which measures income equality) and income distribution between the top and bottom 20 percent, the UK is far worse than Ireland. So why compare ourselves with them?

Why not compare ourselves with the Netherlands which is a small economy like ours, is in the Eurozone (so no need to adjust for currencies) and is better than Ireland in terms of social outcomes – but within reach if we pursued the right policies? After all, we’re copying their health insurance system (sort of).

The problem is that comparison wouldn't fit the narrative – public administration costs in Netherlands are higher than in Ireland: on a full-year basis, 7 percent higher; on an hourly basis, 8.5 percent higher. And neither of these takes into account living costs (okay, you asked: on a full year PPP basis Dutch public administration costs are 15 percent higher; on an hourly PPP basis, 18 percent higher).

But let’s go back to Stephen’s UK comparison. Eurostat numbers only go up to 2008. What’s happened since then? Between 2008 and 2010, Irish public administration costs have fallen by -4.7 percent, and that doesn’t count the pension levy. In the UK, labour costs have marginally increased by 0.2 percent.

But let’s cut to the chase. Many commentators wield statistics not to inform, not to analyse, not to bring a complex set of measurements into greater public understanding; they wield them to pursue a political agenda. And the agenda here is that we have to cut wages – in both the public and private sector – in order to restore fiscal stability and economic growth. Facts are a sideline.

And here's another fact:  €2.4 billion has already been cut out of public sector wages. We were told this would help reduce the deficit. What happened? The deficit actually rose.

Boy, some commentators just keep getting it wrong.

Comments

[Patrick]

With respect, I think your analysis entirely missed the point. Stephen's quote compares Irish public and Irish private sector wages, while you focussed your post on putting Irish public sector wages in a European context.

While the Irish public sector may be on par with its European peers, that says nothing about the gap between public sector and private sector wages.

I'm not trying to bash the public sector or advocating they take any more cuts, I just think analysis should be done to evaluate whether or not the touted public-private gap is truly as large as they say it is.

[Cormac]

Patrick, comparison of average wages in two such diverse sectors tells us pretty much nothing. Private sector wages include everyone working McDonald's or on assembly lines, the public sector wage figure includes doctors, judges and TDs. The two averages don't give any inkling of the mix of job types in each sector, so we don't have any way of telling if the comparison is meaningful.

Stephen Collins is using his comparison to further his political agenda, so I think what Michael is trying to do is to counter this by instead comparing things that are actually comparable and seeing what we find.

I'm not saying he couldn't have made the connection clearer, mind :)

[bigred]

Michael well done in refuting the attacks on the Civil/Public service from the usual sources.Unfortunately the Public believe all this hype.As a public servant (nurse) taken a 7.5 paycut,plus the Pension levy,plus 5% cuts on allowances,25% cut on travel using MY own car for patient visits,oh and the USC how could I forget. And now the infamous Croke Pk deal, you know just privatise the whole lot, see the Public pay for everything,ambulance,police,health etc and lets see the outcome.

[Michael Taft]

Patrick, Cormac - I did make a mistake in using a quote from the article referring to the gap betwee public and private sector pay. The quote I meant to use was the one referring to the gap between Irish and British public sector pay. So I accept that I caused the confusion. As to the gap between Irish public and private sector pay - I fully agree and will do up my next post on this theme.

I hope that clears up some of the confusion that I caused.

[Ernie Ball]

Michael,

Would you not first just edit this post and replace the blockquoted section with this one from the Stephen Collins article?:

Average earnings in the British public service were €634 a week on the last available set of figures by contrast to €912 in Ireland.

Otherwise it looks like the whole article has gone off half-cocked.

[Michael Taft]

Ernie - I have done that. Thanks for the suggestion. Hopefully it reads as it was intended to.

[Niall]

Michael

I came across these slides from a recent conference in TCD, which may be of interest. Again the point made is that there are specific poverty traps, in particular Single Parent Households.

http://www.tcd.ie/policy-institute/assets/pdf/Loftus_March11.pdf

[Johno]

"Of course, as we all know, when comparing between countries ... it is helpful to use power purchasing parities (PPP)."

Unfortunately while PPP makes the wage premium look smaller, it won't reduce the debt we owe to the Germans and the British.

The fact that its more expensive to live in Ireland than Germany won't make Angela Merkel inclined to accept 80 cents on the euro, especially when we are borrowing that cash partly to pay our doctors three times they'd earn in Germany and our professors twice what they'd make in the UK.