The Big Pay Gap Between Public And Private Sectors

01 Aug 2017 | 10.48 am

The Big Pay Gap Between Public And Private Sectors

Public pay this year same as 2008 - despite 60,000 fewer staff

01 Aug 2017 | 10.48 am

New research has highlighted huge pay differentials between the public and private sectors, writes Doug Casey

 

Conall Mac Coille, economist with finance house Davy, has been researching  how public sector pay levels compare with those of the private sector and relative to other countries.. He notes that most objective analyses have found public sector pay levels in Ireland are unusually high relative to the private sector. His own analysis concludes that the average Irish public sector wage was €47,400 in 2016, 40% higher than in the private sector. By contrast, average public sector pay in the UK is £26,200 (€30,800) – almost exactly in line with the private sector.

“The Irish public sector also enjoys retirement benefits that need to be taken into consideration,” says Mac Coille (pictured). “On our calculations, a private sector worker would need to save a €590,000 pension to match the same €23,000 paid per annum to public sector workers when they retire on a career-average salary scheme. The figures are higher for those with defined benefit pensions linked to their final salary.”

Allowances

There is a wide distribution of wage rates across the public sector. Gardai had the highest average pay in 2016 at €64,700, followed by semi-state companies (€53,300) and education (€47,600). The Defence Forces had the lowest average pay in the public sector at €42,000 but were still above the €33,900 private sector average.

“A key point here is that we are looking at what is actually paid to workers,” says Mac Coille. “Pay scales in the public sector are often unrepresentative of actual earnings due to a myriad range of allowances, reliefs and other payments.”

According to Mac Coille, bloated public sector pay is a result of annual pay hikes doled out by Bertie Ahern’s governments under the Social Partnership framework. “The public sector pay bill more than doubled from €8.9bn in 2000 to €21.1bn in 2008, rising from 8.2% of GDP in 2000 to a peak of 12.2% in 2009,” says Mac Coille. He describes the 2002 benchmarking exercise as the nadir of the Social Partnership era.

“Despite little evidence that public sector wages had been ‘left behind’ by the private sector, the Public Service Benchmarking Body awarded an enormous 8.9% rise in pay on average across the public sector. In fact, public sector workers were already paid 13% more than their private sector counterparts in 2001. Not for the first time, the political narrative trumped the facts on public sector pay.”

Average public sector earnings grew by 50% from €31,800 in 2000 to €48,000 by 2007, widening the gap with the private sector. The financial crisis led to an inevitable correction in public sector pay under the Financial Emergency Measures in the Public Interest (FEMPI) legislation. These included a pension levy (7% of pay on average) and a straight pay cut of 6% implemented in 2009. In 2013, public sector workers earning over €65,000 received a further 6% pay cut.

Increments

Mac Coille finds that despite these cuts, average pay in the public sector in 2016 of €47,400 was just 4.2% below the 2009 peak. Other research by economists in UCC has found that that the pay of the bottom 25% of income earners in the public sector actually rose by 7.4% in the period but fell by 4.9% for the top 25%.

Mac Coille explains: “These figures highlight the positive impact of increments (automatic pay rises linked to years of experience) and various reliefs and allowances on public sector pay levels. Perhaps the most telling summary statistic is that the overall size of the public sector pay bill is expected to rise to €20.6 billion in 2017, a level last seen in 2008. This is despite that fact that total employment in the public sector is currently 368,100 compared with the peak of 427,300 in 2008.”

 

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