The psychology of the pecking order in coming public sector pay cuts

[patslatt]

Some years ago,a survey of a very materialistic and pro-business group of people,Harvard Business School students,asked the following question: Would you be for a pay increase of 5% if everybody else got 10% in your workplace? Most students answered no. This illustrates the importance of the psychology of the pecking order,in which one's relative position in the order is more important than a substantial increase in material reward. In such psychology lies the key to resolving the Irish government's massive financial deficit.

The Irish government budget must cut spending by at least 25% to match sustainable tax revenues.Without such cuts,the national debt burden and rapidly rising interest payments would cripple the economy for a decade or more. Politically,this spending cut may be impossible however,requiring the intervention of the IMF and the ECB to dictate austerity to us.

If Ireland wants to avoid the humiliation of an IMF intervention and keep its economic independence,the government should announce across the board cuts that would leave people's position in the pecking order unchanged. For example,all public sector pay and pensions should be cut 25%,with a somewhat lesser cut in all social welfare payments of say 15%. In the private sector,cuts are occuring through grinding deflation,including bonus cuts, shortened working hours and huge numbers of redundancies. But if this doesn't satisfy the potential militants in the public sector unions who would attempt to shut down essential services in protest, the government could increase income taxes to the punitive rates that prevailed in the 1980s so that we can all be miserable together in the unchanged pecking order.

[Penates]

Pat, you're forgetting that people are leveraged up to the gills with mortgage repayments on numerous properties even in the PS. Hitting them with 25% pay cuts may see an increase in defaults in these repayments. This will have knock-on effects in the wider economy.

Pay needs to be managed sure but until we deal with the elephant in the room (high mortgage repayments) can you really see these kinds of cuts being accepted without mass strikes? And how would you suggest we deal with the current mortgage situation?

[Odyessus]

Pat, you're forgetting that people are leveraged up to the gills with mortgage repayments on numerous properties even in the PS. Hitting them with 25% pay cuts may see an increase in defaults in these repayments. This will have knock-on effects in the wider economy.

Pay needs to be managed sure but until we deal with the elephant in the room (high mortgage repayments) can you really see these kinds of cuts being accepted without mass strikes? And how would you suggest we deal with the current mortgage situation?

But mortgage rates are going down, not up.

[feargach]

That's no use if your partner just got let go without a redundancy payment, and you've just been whacked by all the various levies. People in that category are in great danger of defaulting if their partner can't score new work.

Especially when you consider that the media agitators are all over RTE and TV3 demanding more and heavier public sector levies in the December budget.

It only takes a few hundred extra defaults to spark off an economic collapse, depending on the timing.

[patslatt]

That's no use if your partner just got let go without a redundancy payment, and you've just been whacked by all the various levies. People in that category are in great danger of defaulting if their partner can't score new work.

Especially when you consider that the media agitators are all over RTE and TV3 demanding more and heavier public sector levies in the December budget.

It only takes a few hundred extra defaults to spark off an economic collapse, depending on the timing.

It is futile for families to continue paying mortgages they can't afford. The best solution in the case of very deep drops in house prices is for the banks to renegotiate the mortgage payments downwards to a level that partially reflects the reduced values the houses. If a family still can't afford the renegotiated payment,then foreclosure is the best solution for both parties.

With a public sector pay cut of 25%,there would be a knock-on effect on house prices for those ps workers who have a high mortgage burden. If a quarter of the public sector was in this situation,that would be around 80,000 workers and,assuming a spouse or partner shared in the payments,mortgages on less than 80,000 houses would be in danger of default,maybe 60,000. After renegotiation with banks,the number of foreclosures might be a fraction of that figure.

That would put downward pressure on house prices generally but reduction of prices to realistic levels would help to clear excess housing from the market by bringing in new buyers now on the sidelines. At present,there is a standoff between sellers who haven't brought themselves to accept that prices must fall and buyers who refuse to pay prices from the Celtic Tiger property bubble.

[patslatt]

Pat, you're forgetting that people are leveraged up to the gills with mortgage repayments on numerous properties even in the PS. Hitting them with 25% pay cuts may see an increase in defaults in these repayments. This will have knock-on effects in the wider economy.

Pay needs to be managed sure but until we deal with the elephant in the room (high mortgage repayments) can you really see these kinds of cuts being accepted without mass strikes? And how would you suggest we deal with the current mortgage situation?

Mass strikes by well paid,comfortably well off workers with jobs for life? Hardly the stuff of Jim Larkin's General Strike in 1913. It's either pay cuts of 25%,layoffs of 25% or a mix of both. Faced with these stark choices,which would be acceptable? The economic alternative is to abandon the euro and inflate away the wage gains with hyperinflation of 20% plus,the Argentina/Brazil scenario.

[Question R24U]

A bit of red circling would not go amiss.
Eg anyone who applies for unemployment benefit after the 1st May should only get 160
Euro or a 20% reduction. They didn't get the higher rate anyway so the hit will not be noticed over and above the drop from paid work. (once on the dole for a year, everyone should have to reapply so eventually everyone gets on the same rate).
Every vacant public sector job should also be advertised at a rate which is 20% then the predecessor had, eg the deputies of the next dail should only be paid 80 Grand. Lets see who applies. It also means that posts will be filled by ambitious rather t.ibm the next in line.

[myksav]

Pat, you're forgetting that people are leveraged up to the gills with mortgage repayments on numerous properties even in the PS. Hitting them with 25% pay cuts may see an increase in defaults in these repayments. This will have knock-on effects in the wider economy.

Pay needs to be managed sure but until we deal with the elephant in the room (high mortgage repayments) can you really see these kinds of cuts being accepted without mass strikes? And how would you suggest we deal with the current mortgage situation?

One can always re-negotiate mortgage repayments. Banks are not interested in seeing defaults and a re-negotiated repayment schedule is still repayments. Defaults (on property) are at present a losing proposition as they "lose value" on the market.

I wonder why people don't see this as an option? Shame at a drop in income?

[InReality]

Your inital point is a good insight. You should have left it at that and we could have had an interesting discussion. Now all people will talk about is your suggested cut.

[patslatt]

Your inital point is a good insight. You should have left it at that and we could have had an interesting discussion. Now all people will talk about is your suggested cut.

Cut in what?