
Originally Posted by
Dublinguy
Public sector pay International comparison
The public sector pay and pensions bill for 2008 has been set out in the Pre-Budget
Estimates at over 18.6 billion on an existing level of service basis. This public pay
bill already constitutes 38% of the overall current public expenditure and is a 6.2%
increase on this year.
We do not know what awards, if any, the Public Sector Benchmarking Body might
make but what we do know is that for every 1% extra proposed, it will cost an extra
186 million per year to the taxpayer. Such an amount could be used to widen the
standard rate tax bands by 1,500 or reduce the top rate of tax from 41% to 40% in
2008.
What we also know from official earnings data collected by the CSO is that public
sector workers in Ireland are on average better paid than those working in the private
sector. We know too that Irish public sector workers in general are paid more than
their international comparators. The European Commission s EUROSTAT data show
that in Ireland the average public sector employee earned 46,000 in 2004 compared
to 36,000 in the private sector. The data also show that Irish public servants are
higher paid than their counterparts in each of the countries reviewed. Indeed, in
Denmark, Germany, Netherlands, Finland and the UK the public-private wage
differential is reversed.
On average, public sector pay in the other EU countries examined was 11,000 lower
than in Ireland. An average teacher s salary in Ireland in 2004 was found to be over
48,000 some 35% ahead of that in the UK and 25% higher than Germany. Health
and social workers in Ireland earned an average of 46,000, which was nearly double
average earnings for the sector in Finland and about 30% ahead of those in the UK.
These were the highest rates in the study. Data also from the EU Commission show
that average economy-wide earnings in Ireland are 13% higher than in the euro area.
The differential of 30% enjoyed by Irish public sector workers in considerably larger
than this and suggests that public sector pay in Ireland has fallen out of sync with that
elsewhere in Europe.
Public sector pay claims in Ireland are often based on the fact that Ireland is an
expensive country in which to live. While there is evidence to suggest that Ireland has
become more expensive than the EU average, the higher cost of living is more than
compensated for by comparably low income tax rates. The Irish income tax burden is
the lowest in the OECD and when public sector wages are examined on an after-tax
basis the pay premium enjoyed by the Irish public sector rises to over 50%.
The previous Public Sector Benchmarking exercise has been central in accelerating
the pay premium enjoyed by Irish public sector workers in recent years. Research
from the European Central Bank (ECB) sheds further light on this. It found that
between 1999 and 2006, average public sector pay in Ireland increased by 67%, while
that in the euro area grew by just 22%. In the private sector, average pay in Ireland
increased by 42% compared to just 15% in the euro area. Benchmarking has resulted
in Irish public sector pay growing faster than any other country in the EU and actual
pay levels overtaking those in almost every other OECD country.
A vibrant, efficient public sector is a critical component in the competitive success of
trading nation like Ireland. The nature of the activities carried out within the public
sector, particularly in administration roles is broadly comparable with those
undertaken in any other advanced society. A situation that significant pay premiums
exist over comparable international economies, must either be justified by verifiable
greater productivity or is a competitive drag on the internationally tradable sectors of
the economy. If the differential is productivity justified then there can be little qualms
about the significant international pay premium observed in Ireland. Without
sufficient transparency, such a benign assessment cannot be easily arrived at.
A loss of competitiveness in the private sector gets remedied by either wage
adjustment or job reductions. Such mechanisms are not readily apparent within the
public sector. Building permanent costs into the public sector pay and pensions bills
should not be done lightly nor without due regard to meaningful productivity
improvements. The public sector has shown capacity to respond and modernise across
a swathe of institutions. The reality may be a lot better than the perception. A more
transparent benchmark process on this occasion will go some way to aligning both.