Minister of Finance Brian Lenihan

The ESRI (Economic and Social Research Institute) has published a new paper, which shows that the Irish public sector pay premium jumped from 14% to 26% for comparable private jobs in respect of the period 2003-2006.

The authors say the public sector pay premium has become a central issue within the public policy debate in Ireland. The existence of a large public sector pay premium is an important issue for analysis as it can have serious implications for economic performance and growth, not to mention the public finances and the labour market.

Most importantly, the institute says the gap has the potential to erode international competitiveness by putting wage pressure on other sectors of the economy as they compete for labour.

Last month, the authors first issued their findings and this paper looks in more depth at job sectors and sub sectors.

Public sector workers feel that they are being unfairly targeted in the effort to correct the public finances but job security and one of the world's best pension schemes, are taken for granted, while some will not accept research on the pay premium, which has been done by the publicly funded ESRI.

The paper authors say that between March 2003 and October 2006, the public sector pay premium increased from 14% to 26% and that there was substantial variation between subsectors of the public service - - this was a period when the first benchmarking payments were being made.

The paper says within the public service the premium in 2006 was highest in Education and Security Services and lowest in the Civil Service and Local Authorities. In the private sector the pay penalty in 2006, relative to the public sector, was most severe in Hotels & Restaurants and in Wholesale & Retail and least severe in Financial Intermediation and Construction.

The paper also addresses criticisms of “like-with–like” comparisons across jobs by re-estimating the public sector premiums using propensity score methods (PSM) that include detailed two-digit controls for occupation. Thus, where important occupational differences exist within a particular component of the public sector, this will be accounted for within the PSM framework and a “like-with-like” comparison will be made.

The comparisons are based on age, qualifications, gender, experience and work patterns.

The paper tests for the sensitivity of the pay gap estimates using a matching framework, which provides a stronger emphasis on job content. Finally, the study highlights the problems associated with controlling for organisational size in any study of the public-private pay gap in Ireland.

Clerical staff in the Electricity sector (dominated by public sector) in 2008, were paid €27.90 per hour, compared with €21 for industry and €20 in finance. See Page 4:CSO report: Earnings and Labour Costs

The majority of private sector workers have no occupational pension.