Notes On The Front

Low Pay is a Moral Issue

In their EU peer group, the Irish low-paid are some of the lowest paid, according to recently published Eurostat data.

In the overall economy, Irish employees are paid less than their peer group – other high-income EU economies (essentially, the EU-15 excluding the poorer Mediterranean counties and, very shortly, the UK).

Eurostat estimates employee compensation (including labour costs which make up a fraction of the total) for firms employing 10 workers or more.  Public Administration is excluded as many countries do not report this.

Ireland is at the bottom of the table, above only low-paid UK.  On average, Irish employees would need an 18 percent increase in compensation to reach the mean average of our peer group.  It should be noted that the average is mean; another measurement would be the weighted average but Eurostat does not provide this.  However, the weighted average would, in most cases, be somewhere between German and French levels since they dominate this grouping.  This would still leave Irish workers requiring a 13 percent increase. 

Let’s turn to the Irish low-paid sectors in the market economy (essentially the private sector), which for the purposes here are calculated at 2/3 of the Irish average.   There are eight sub-sectors below this benchmark:  retail, hotels, restaurants, waste collection, security, building services (cleaners and gardeners), and wearing apparel and furniture manufacture. There are 315,000 people employed in these sectors, or one-third of market economy employment.

The largest sub-sector is the retail sector with over 153,000 employees.  Ireland is at the very bottom, even below low-paid UK.  Irish retail workers would need a 43 percent increase in compensation (a 33 percent increase if we use our short-cut weighted average; that is, half the difference between Germany and France).  The gap between Irish and average peer-group pay is more than twice as much as the national gap.

The next two biggest sectors are in the hospitality industry:  hotels and restaurants.

If anything, the situation is worse for the 128,000 Irish hospitality employees – with a larger gap with their peer-group than retail workers have.  In fact, compensation is so low in these sectors that they fall below Italian hospitality compensation levels, even though Irish national income is more than a fifth higher.

There are two other low-paid service areas:  private security personnel and building service workers (primarily cleaners and gardeners). 

The 27,000 Irish workers in these sectors also see their compensation trailing significantly.

The story is much the same for the other sectors.  The small manufacturing sectors of furniture and wearing apparel also find themselves well behind their peer-group.

There is one last group:  the waste collection sector.  These are the workers – 3,500 of them - who pick up, treat, recycle and dispose of our rubbish. 

Irish waste workers would need a nearly 60 percent compensation increase to reach their peer-groups mean average.  Even taking the short-cut weighted measure, they would need a 42 percent increase, but this probably understates this measurement given the high compensation levels pertaining in other countries.

None of the above factors in inflation (purchasing power parities).  If we did that we would find the gap with the mean average shrinking but, when using a weighted average, it would widen (largely because Germany is low-inflation economy). 

It should be further noted that employee compensation includes both the direct wage (paid directly to the employee) and the social wage (paid to a Social Insurance Fund).  Through the social wage, employees in continental Europe can access free (or low-cost) health care, subsidised prescription medicine, and in-work income supports (pay-related sick benefit, maternity and paternity leave, etc.).  Further, in many countries the social wage – apart from social insurance - subsidises public transport (e.g. Paris) and generous family supports (e.g. Austria).

Even when you exclude the social wage, Irish wages are low – with retail workers needing a 22 percent increase just to reach their peer group mean average (or 15 percent when inflation is factored in).  Add in all those costs Irish workers bear that workers in other countries get subsidised through the social wage, and we now we see why Irish living standards are relatively low.

Getting a pay rise is only one aspect of correcting this situation.  There is a need to increase the social wage (employers’ social insurance) so that workers can consume more public services and supports collectively. 

We need to focus on the lowest-paid in society.  It is scandalous that so many are left behind on such low wages.  We need to focus on employees’ rights in the workplace (e.g. collective bargaining), bargaining across sectors and, just as importantly, a social-cultural transformation that no longer tolerates such grim conditions.    These are the people – our neighbours, friends, family members, and fellow residents – who serve our meals, clean up after us, secure our buildings, assist us in the shops, pick up our rubbish and manufacture the goods we use.

Maybe it’s a bit passé or old-fashioned to say that this is a moral issue. But given the level of low pay, hopefully not.

Getting on the Fiscal Pitch

The Irish Fiscal Advisory Council has provided the Left an open goal.  If we shoot, we score.  But first we have to get on the pitch.  And right now the Left has not even put on their jerseys. 

In their latest Fiscal Assessment Report, the Fiscal Council got more than a bit tetchy with the Government’s handling of the public finances.  They used some undiplomatic language:

‘ . . . the medium-term budgetary plans are not credible . . . ‘

Ouch.  The Fiscal Council’s critique of the Government’s fiscal policy boils down to (a) failing to drive a budgetary surplus in the good times; (b) leaving the debt at an elevated level;  (c) stimulating an economy to the point of over-heating; and (d) failing to factor in the downsides in future projections.  All of this is leaving us badly exposed of the inevitable slowing down of the economy, never mind the damage Brexit, changes international taxation and trade wars could do. 

In short, Fine Gael is squandering the recovery.  Put this together with Fianna Fail’s reckless pre-crash policies (never mind the equally reckless austerity measures both parties pursued) and the Left has a good starting narrative:  you can’t trust the Right to manage our public finances.

This doesn’t mean people will automatically trust the Left, which to date has had little to say about the issues of debt, over-heating, deficits, etc.  This allows the Taoiseach to get away with deflecting the debate away from the Fiscal Council’s criticism:

‘[The Taoiseach] insisted the Government’s spending was modest compared to the constant demands of the left-wing Opposition for increased spending . . . if people listened to that kind of left-wing rhetoric the economy would plummet very quickly.’

The Left’s silence allows our opponents to monopolise the issue and distort its position. 

So let’s start engaging the debate.  Here are some ideas.  These are not comprehensive or necessarily authoritative.  But hopefully it will get things started.

Stick with the Fiscal Rules. Never thought I’d write that but for now the Fiscal Rules are a practical defence against more orthodox policies.  Sticking with the Rules’ deficit target will allow us more space than Government spending projections.  We can still critique the Rules’ faults, though:  the treatment of investment, the inapplicability of the Rules’ methodology to a small, open economy; their deflationary bias, etc.

Strengthen Automatic Stabilisers. There are two key stabilisers:

• Unemployment Benefit: In the event of a slowdown higher unemployment benefits will help maintain domestic demand.  In our EU peer group, unemployment benefit is far stronger - over €300 and €400 a week; in Ireland, it is only €193.  Increase unemployment benefit with a small increase in Employers’ social insurance. 
• Employment Subsidy: It is important to maintain employment in downturns.  Therefore, rather than job losses, employers would reduce workers’ hours with the state subsidising workers’ income to prevent loss in take-home pay.  This programme was pursued by Germany during the last downturn with considerable success.  This would be less costly than growing the dole queues.

Underpin the Productive Economy. There are three main areas: 

• Introduce cost-rental housing to substantially reduce rent levels. This would increase spending on goods and services and reduce unnecessary upward pressure on wages. 
• A new financial model for childcare: current policies are not working (last year, the Government handed over €1,000 in cash subsidies to childcare providers– and fees still increased).  Reducing fees would, again, allow for higher expenditure on goods and services, and reduce entry costs into the labour market.
• Human capital, education, and innovation capacity: to see us through the medium and long-term, increase resources into education, innovation, and basic and applied research (Ireland compares poorly to other EU countries), switch away from tax credits to grants for SMEs, increase links between state, universities and  progressive enterprises, etc.

Collective Bargaining Rights for Workers: optimising our response to any downturn requires employees to be part of the solution, part of the decision-making process at firm-level.  Further, sectoral committees should be set up in those sectors most at risk of Brexit or other-related slowdowns with full employee participation.  Collective bargaining has two significant benefits:

• It tends to favour those on low and average incomes – the groups that have a higher propensity to spend during a downturn
• It tends to reduce precarious contracts which currently exclude people from fully participating in the consumer economy (that is, they are forced to save during those weeks they have less work or no work at all).

Keep Public Banks Public: notably, AIB.  Banks are notoriously counter-cyclical; when the economy goes into downturn banks withhold lending.  A public bank can act differently since it is not beholden to short-term shareholder interests.  It can continue to support viable companies, which might not otherwise be able to access credit.

Engage in Real Public Services Reform: we need to ensure efficiency and productivity in our public services.  So why not bring in the actual producers of public services; namely, the employees.  Employee-driven innovation is a feature in many other EU countries.  It is employees who are best placed to know why something isn’t working and how it can be put right.

Unleash Public Enterprises: public enterprises are essentially investment-driven businesses.  This will be all the more needed in the rough periods ahead.  During the last recession, public enterprises maintained investment.  Currently, the top six public enterprises invest the equivalent of 40 percent of the state’s capital budget. 

* * *

It might seem curious this hasn’t focused on tax issues.  Budgets, however, merely reflect the state of the economy so we must first look to economic policies.  You will increase revenue if you raise the wage floor, end precarious contracts, drive investment, strengthen stabilisers, reduce rents and childcare fees, and support innovation. 

Measures that put the economy on a more sustainable footing can then be complemented by tax measures – in particular, taxation on property, assets and passive income.  Two short-term measures would be to introduce a net assets (wealth) tax and substantially increase inheritance tax.  And, of course, stop Fine Gael from introducing its €3 billion tax cut bonanza.

However the debate evolves, whatever other and better measures are proposed, the key thing is to resolve in the New Year to enter the fiscal debate.  Let’s put on our jerseys and get on the pitch.

An open goal awaits us.