The economics of 50,000 public sector redundancies

[patslatt]

Ireland's heavy dependance on falling exports in the international recession,the credit crunch in the banking system,the fallout from the property crash and weak prospects for consumer spending due to heavy consumer indebtedness,all point to a very severe recession and even a borderline depression with unemployment in the teens. In view of this outlook,the government will be forced selectively to cut back spending to prevent its deficit from bankrupting the country. It will also need to finance antirecessionary Keynesian stimulus programmes in both public works and income redistribution to low income earners.

Of course,the government could try the expedient of cutting back on infrastructure programmes but that could prevent economic revival and leave the country in the grips of a liquidity trap in which business and consumers are too fearful to borrow for spending for years to come.

THe only satisfactory solution in sight is a major redundancy programme in the public sector.Attrition in jobs through not replacing those who leave would not be enough. It is generally agreed that public sector expansion in recent years is no longer affordable and must be reversed. Although retirements and resignations will reduce numbers by maybe 4% a year,most of those will have to be replaced given the specialised nature of the work and the unwillingness of public sector workers to move house or to transfer to new departments.

I estimate that 50,000 redundancies spread over three years would suffice. Given average salaries of say €50,000 (with redundancies weighted more heavily in the top heavy €50,000 to €100,000 a year brackets), plus benefits worth an additional 20% of salaries,the total payroll savings could be €3 billion a year.

This saving would be offset by the cost of unemployment insurance,which would be a fraction of the government salaries. According to Wikipedia,the standard payment is €197.80 (maximum rate 2008) per week. Payments can be increased if the unemployed has dependants. For each adult dependent, another €131.30 (maximum rate 2008) is added; and for each child dependent, another €24.00 (maximum rate 2008) is added.

From the figures above,in a sense the redundancy programme is a redistribution of income outside of the progressive tax system.

Redundancy costs tend to be high in the public sector. Fortunately,as I understand it the EU Commission doesn't count redundancies in calculating allowable budgetary deficits of EU states.

Fortunately also,public sector workers are generally well educated and so could be quickly reemployed (hopefully without too great a culture shock!) in the private sector when the economy recovers with a kickstart from a Keynesian spending programme.

[Question R24U]

Before you end up with predictable responses (there you go again etc)
- what is your source that any political party is considering 50,000 public sector employees to be laid off?
- from what depts/agencies will they be lost?
- have you factored in cost of legal proceedings for unfair dismisall/breach of contract/ unfairness in selection for redundancy?
- what is your source that the average wage fo those who you intend to lay off is €50,000?

[PhoenixIreland]

Take the (high) disposable incomes of 50 000 people out of the economy at a time when consumer demand is tanking, and at a time of recession when they can't find a new job....

Great plan. What could possibly go wrong with that...

[Kevin Doyle]

Ireland's heavy dependance on falling exports in the international recession,the credit crunch in the banking system,the fallout from the property crash and weak prospects for consumer spending due to heavy consumer indebtedness,all point to a very severe recession and even a borderline depression with unemployment in the teens. In view of this outlook,the government will be forced selectively to cut back spending to prevent its deficit from bankrupting the country. It will also need to finance antirecessionary Keynesian stimulus programmes in both public works and income redistribution to low income earners.

Of course,the government could try the expedient of cutting back on infrastructure programmes but that could prevent economic revival and leave the country in the grips of a liquidity trap for years to come.

THe only satisfactory solution in sight is a major redundancy programme in the public sector.Attrition in jobs through not replacing those who leave would not be enough. It is generally agreed that public sector expansion in recent years is no longer affordable and must be reversed. Although retirements and resignations will reduce numbers by maybe 4% a year,most of those will have to be replaced given the specialised nature of the work and the unwillingness of public sector workers to move house or to transfer to new departments.

I estimate that 50,000 redundancies spread over three years would suffice. Given average salaries of say €50,000 (with redundancies weighted more heavily in the top heavy €50,000 to €100,000 a year brackets), plus benefits worth an additional 20% of salaries,the total payroll savings could be €3 billion a year.

This saving would be offset by the cost of unemployment insurance,which would be a fraction of the government salaries. According to Wikipedia,the standard payment is €197.80 (maximum rate 2008) per week. Payments can be increased if the unemployed has dependants. For each adult dependent, another €131.30 (maximum rate 2008) is added; and for each child dependent, another €24.00 (maximum rate 2008) is added.

From the figures above,in a sense the redundancy programme is a redistribution of income outside of the progressive tax system.

Redundancy costs tend to be high in the public sector. Fortunately,as I understand it the EU Commission doesn't count redundancies in calculating allowable budgetary deficits of EU states.

Fortunately also,public sector workers are generally well educated and so could be quickly reemployed (hopefully without too great a culture shock!) in the private sector when the economy recovers with a kickstart from a Keynesian spending programme.

Basically you are against a Progressive tax system on the grounds that there is a readily available group of martyrs available to be sacrificed at the expense of the failed policy of low taxation. All you are saying here despite the fiscal gymnastics is that if we slash the public sector we can carry on as before and all will be well.

That will not suffice. We need reform of the Public sector combined with reform of the taxation regime in this country. It is as simple as that.

If you slash the public sector to the tune you are taking about you will render it impotent and unable to perform its duties. In light of this no doubt you have already lined up the privatisation arguement to fill in and buoy up the carefully selected areas of the Public sector you would see decimated.

This is all a bit too transparent and the agenda here is obvious.

Make a scapegoat, deflect attention from those who are actually crushing the economy for their own personal ends-and have been doing for a decade, prevent at all costs any notion of a windfall tax that might recoup the billions siphoned out of the economy into their bank accounts and keep alive the failed neo-liberal arguement of ultra low income taxation, privatisation and market solutions to our economic problems.

It is plainly stupid to employ the same failed thinking as that which got us into this mess in the first place.

[smitchy2]

I would not think any party would consider this amount of redundancies.
I would say at most there will be 10,000 (and I really mean at most).
The government will not want to increase unemployment in the state (rightly so).

It is predictable that it is only now that the government has realised that a lot of the public sector is not efficient and effective at providing its services despite being told this for years. A single purchasing unit for all departments is hardly brain science!

The big problem which the current government has is that they created many of these inflated QUANGOS for jobs for their mates.
The HSE is also managed ineffectively but ultimately it has a key role in the nations services (once again there will be stiff resistance from unions)

As it will be so tough to establish 10k jobs, the best short term solution is a real pay freeze for all of 2009 and 2010 if necessary.
Pay cuts on a declining scale of 15-5% should be taken on all state incomes (importantly on all TDs, state bodies management) over €50k to save significant expenditure. All wages under 50k should be maintained.

This is the only way to stop busting the books and prevent massive layoffs.

[Kevin Doyle]

As it will be so tough to establish 10k jobs, the best short term solution is a real pay freeze for all of 2009 and 2010 if necessary..

This is at least a considered approach (as opposed to the OP) and worth engaging with. A pay freeze is in effect, if it requires an extension (and it most likely will) I doubt it will face much resistance by the public sector.

Pay cuts on a declining scale of 15-5% should be taken on all state incomes (importantly on all TDs, state bodies management) over €50k to save significant expenditure. All wages under 50k should be maintained...

Again a very reasonable and workable suggestion. I would go further and reduce slaries by 20% for those over €120,000, also strip out unnecessary expenses etc etc.

There are other areas within the Public sector that could benefit with astute restructuring.

[meriwether2]

Take the (high) disposable incomes of 50 000 people out of the economy at a time when consumer demand is tanking, and at a time of recession when they can't find a new job....

Great plan. What could possibly go wrong with that...

This reasoning is doo-lally. I hope yu have no position of power in this country, but after watching the Labour conference, I wouldn't be surprised if you are on the NEC or something.

50,000 (thats the figure provided) by their wages, are a drain on the economy.

Lets say they are paid 50k. Lets say tax is 10k (for the hell of it).
They pay 10k in income tax. They will spend X% in indirect tax, such as VAT.
Lets say (worst case scenario) they save only 10k per year.

That would mean they have disposed of 40k. How much would the exchequer receive?
Hard to know, but it wouldn't be 40k. Lets say 30k, and unlikely at that.

So the government has spent 50k on this person and received 30k back.

Thats a drain on the exchequer that would be saved if they weren't employed. This 20k could be spent on services, infrastructure, R&D etc.

(This hypothetical person is not needed to provide frontline services. He/ she is in admin. This argument does not state that a public servant does not provide a service that is worthy of their wages, this is an argument that if people are not needed, they are a drain on the exchequer. 50,000 redundancies is a hypothetical number provided by the thread starter I have worked with).

[blacbloc]

Make a scapegoat, deflect attention from those who are actually crushing the economy for their own personal ends-and have been doing for a decade, prevent at all costs any notion of a windfall tax that might recoup the billions siphoned out of the economy into their bank accounts and keep alive the failed neo-liberal arguement of ultra low income taxation, privatisation and market solutions to our economic problems.

It is plainly stupid to employ the same failed thinking as that which got us into this mess in the first place.

Bang on. And to that end I'm starting a new thread entitled 'The wooden stupidity of the Right-wing'

[PhoenixIreland]

Thats a drain on the exchequer that would be saved if they weren't employed. This 20k could be spent on services, infrastructure, R&D etc.

Would it really now?
Whats this govts record on spending money on services instead of wages?
Take a look at the red tape in the health service, where they employ 40% of the staff who dont' know what their job is but at the same time tell us we don't need more hospital beds.

You just bust down their income from thousands in disposable income they might spend into the economy to zero (because nobody has a lot of spare change to spread around if they're on 200 a week welfare)

The time to reform the public sector was the boom years, when the people you fire could get new jobs, instead they were drastically increasing the numbers employed in the public sector.

No matter what people on this site seem to think, sacking loads of civil servants is not a silver bullet to every economic problem.

(and if you think anyone in this climate is saving a 5th of their salary you'r ******************************g nuts)

[goosebump]

Payroll rather than numbers is the issue.

There needs to be a pay cut and a review of BIK in the public service, particularly re. pensions. You would also run a voluntary redundancy progamme in tandem with this, and allow for natural attrition. A degree of privatisation wouldn't go a miss either.

Dumping 50k people out on the street would give the economy a very nasty jolt, and its consequences would be widespread.