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News : Irish Economy Last Updated: Jun 5, 2013 - 8:58 AM

Irish Economy: Average public/ private pay premium in 2010 was 17%; 0% in Finland & Germany
By Finfacts Team
Jan 31, 2013 - 5:14 AM

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Irish Economy: Researchers at the ESRI (Economic and Social Research Institute) say that the average  public/private pay premium in Ireland in 2010 was 17% when allowance was made for skills and organisation size excluded. It was 0% in Finland and Germany . The public pension scheme and level of coverage is also vastly superior to what is available to private sector workers. Besides, Ireland retains the 1850s British Empire era lifetime job guarantee for public employees.

The economists, Elish Kelly, Seamus McGuinness and Philip O’Connell (UCD Geary Institute), say in a paper published today in the 'Quarterly Economic Commentary' that analysis published by the Central Statistics Office (CSO) in October 2012 suggested that the public/ private sector pay gap ranged between 6.1% and 18.9% in 2010. The report also showed that the premium fell between 2009 and 2010, which is to be expected given the substantial public sector wage cuts implemented in 2010.

The paper [pdf] says that on average, public sector  workers earned over 26% more per week, and 40% more per hour, than employees in the private sector in 2010. However, as the CSO report notes, much of this differential is due to differences between public and private sector workers in terms of education, experience and other factors that influence pay. Thus, while the average hourly pay of public sector workers might be 40% higher, if half of this were attributable to superior experience and education levels of public sector workers, then the estimated public sector pay premium (i.e. the part that cannot be explained by differences in the characteristics of the workers) would be 20%.

However, the economists say that the CSO categorised all public sector workers as employees of a large organisation.

The paper says the application of this organisational size premium in such a universal fashion gives rise to difficulties given that most schools, Garda (police) stations, etc., do not in fact employ very large numbers of people. Moreover, while wage bargaining is undertaken at enterprise level, that variable is captured by the inclusion of the trade union membership. "In the latest CSO report, we can see that the inclusion of the enterprise measure of organisational size leads to a reduction in the estimated pay gap by half, i.e., between 6.3 and 8.5 percentage points (Table 1 above)."

The economists say: "We believe that the data at hand require that estimates should be based on a specification that excludes organisational size as a control and that the data should be weighted to ensure that it is representative of the population of employees in employment. We note that the IMF has taken a similar view on this issue in its recent discussion of public sector pay levels in Ireland in the December 2012 country report . Consequently, we are of the view that the average public-private pay gap in Ireland in 2010 was likely to have been close to 17%."

Statistics Finland reported that Finnish pay, which was similar to Irish average pay, in 2010 was higher in the private sector for all age ranges than in local government. Central government staff in their 40s had a small premium of about 4%. Overall, private sector pay was above the average.

In 2011, research published by the German Macroeconomic Policy Institute (IMK) shows that  in 2010, the average hourly labour costs (including social security costs paid by private sector employers) were €28 for the Irish private sector and €34 for the Irish public sector.

The rates for Germany were €29 per hour in both sectors; Finland's rate was also €29 in both sectors and the UK was €20 per hour in the private sector and €21 per hour in the public sector.

So the Irish public sector had a premium of 21% before accounting for the benefits of the special pension scheme.

'The National Strategy for Higher Education to 2030' report which was published in January 2011 stated: "Salaries account for three-quarters of total current expenditure on higher education in Ireland – compared with an international average of two-thirds. This means that Irish higher education operates with lower (nonpay) recurrent expenditure than is typical in other countries."

IMK report in German [pdf]

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