Irish public sector pay excluding pensions exceeds comparable private sector pay by 10% for top jobs to up to 30% for other grades according to research published in the Economic and Social Research Institute (ESRI) in its Winter 2008 Quarterly Economic Commentary.
In July 2000, the Public Service Benchmarking Body was established, following pressure from the trade unions, who used news of a number of dot com millionaires to claim that public sector workers were underpaid. Ministers received two payments and the average special pay increase was 9%, including for all retirees. It was possibly the greatest fraud in the history of the State (see below).
The ESRI researchers Elish Kelly, Séamus McGuinness and Philip O'Connell, say the gap between public and private sector pay in Ireland is "far higher" than in many other countries. The average wage advantage increased to 20 per cent in 2006 from less than 10 per cent in 2003 due to several pay awards, while the pay gap in the rest of Europe rarely exceeds 10 per cent. "This differential would be difficult to justify in normal economic circumstances," they say. The researchers say that analysis of National Employment Survey (NES ) data enabled them to assess the extent of the public-sector wage premium while taking account of differences in the composition of the workforces in the two sectors.
The analysis shows that, controlling for the influence of education, experience, gender, and occupation, the public sector pay premium increased from less than 10 per cent in 2003 to over 20 per cent in 2006, following the series of pay setting rounds in the intervening years13. It should be noted that the methodology used is based on the standard approach in the international literature to the comparison of earnings and is similar to that adopted in the econometric study of the 2003 NES data prepared for the second Benchmarking report14. Furthermore, the earnings information used in the study takes account of regular bonuses and commissions. The public sector pay premium was found to apply equally to both male and female employees in 2006. In addition, the analysis suggests that in 2003 senior public sector officials, those at the top of the income distribution, earned less then their counterparts in the private sector. However, by 2006, the wage penalty for senior public servants had been reversed and replaced by a pay premium in excess of 10 per cent. The public sector advantage is even greater for those at the lower end of the income distribution, with those in the lowest public sector grades earning a premium in excess of 30 per cent compared to their private sector counterparts.
The researchers say that it is important to note that these results represent conservative estimates of the extent of the differential in compensation between public and private sector workers as they take no account of the fact that the vast majority of public sector workers are entitled to pensions index-linked to wage growth in the public sector. Furthermore, occupational pension coverage is much lower in the private sector, and many such pension schemes are not linked to wage growth. In addition, the estimates do not take account of the job security enjoyed by public sector workers.
Since 2006, additional awards were recommended under the Review Body on Higher Remuneration in the Public Sector, mainly to senior posts in 2007, although implementation of some of these rewards has been deferred.
Moreover, a number of additional awards are pending. The second Benchmarking report has recommended awards ranging from 1-15 per cent, mainly for senior public sector grades, although for the vast majority of grades no increase was recommended. Under the most recent Social Partnership pay agreement, increases of 5.5 per cent to 6 per cent across both public and private sectors have been agreed over the October 2008 to June 2010 period, with implementation scheduled to begin in September 2009.
The researchers say the extent of the discrepancy between public and private sector pay in Ireland is far higher than in many other countries: the pay gap rarely exceeds 10 per cent in European countries. This differential would be difficult to justify in normal economic circumstances.The current context of economic recession, with falling employment, growing unemployment and a crisis in the public finances, suggests that the public sector pay premium should come on the agenda for discussion with the Social Partners as a matter of urgency.
ESRI Paper: Benchmarking, Social Partnership and Higher Remuneration: Wage Settling Institutions and the Public-Private Sector Wage Gap in Ireland
In 2004, the former Davy Stockbrokers economist Jim O'Leary who had resigned from the first benchmarking body because it was a farce, joined the Department of Economics at Maynooth University, and published with two of his colleagues, the results of six months' rigorous and painstaking research into public-private sector pay differentials in Ireland - Public-Private Wage Differentials in Ireland, G.Boyle, R.McElligott and J.O'Leary, ESRI Quarterly Economic Commentary, Summer 2004.
O'Leary and his colleagues wanted to discover whether similar people in similar employment circumstances were better or worse off working in the public than in the private sector. In order to do this, they had to control for attributes like age, experience, gender and education, and also for job characteristics like occupation, type of contract and size of establishment.
As the CSO data does not permit this kind of analysis, the dataset that they had to use is one based on a large-scale survey conducted by the Economic and Social Research Institute (ESRI) and used for much of its research into poverty and inequality.
The core finding was that on average, public servants earned 13% cent more than their private sector counterparts on a like-for-like basis in 2001.
The researchers discovered that the size of this margin (the public sector premium) in 2001 was not significantly different from what it had been in 1994, suggesting that pay increases in the public sector had kept pace with the private sector throughout the Celtic Tiger period.
Another discovery was that the margin by which public service workers outearned their private sector counterparts tended to be significantly larger at the bottom of the income distribution than at the top.
The first benchmarking body viewed pensions as being irrelevant in comparing public and private pay as the then Taoiseach Bertie Ahern and Finance Minister Charlie McCreevy wanted to produce a favourable end result for the public sector unions.
As for the second benchmarking report, the "more valuable pension arrangements in the public service relative to private sector arrangements," was assessed as 12% of salary, as if all private sector workers are covered.
Convenient indeed, but the majority of Irish private sector workers have no occupational pension. Besides, many of those who do, are exposed to the vagaries of the market.