Reducing living costs, driving innovation and reform, and reducing inequality shows the potential of the public sector. This requires a better politics,” writes SIPTU Deputy General Secretary, John King on the need to have a real world analysis of the drivers of inflation.
For those who are concerned about our public services, how we can improve them, and ensure they are a key driver in people’s life quality, David McWilliam’s article will be a disappointment. His approach to the issue is a classic example of misdirection, based on out-of-date orthodoxies and creative (to say the least) use of numbers. The public debate deserves better.
For instance, McWilliams claims that workers’ wages have risen more than three times faster than inflation since 2016. People will find this claim surprising. And rightly so. Over the last two years private and public sector workers have actually suffered a real (after inflation) pay cut of between seven and nine percent respectively. Even when we look at the trend over the last seven years, workers’ wages haven’t even come close to rising three times faster than inflation.
This ‘three times faster than inflation’ claim conflates pay and employment. Half of the rise of the total Exchequer pay bill since 2016 is due to increased employment, not pay. But even here, public sector employment is falling as a proportion of total employment.
To cut through this all this confusion, we find that the Exchequer pay bill as a proportion of national income (GNI*) has been falling. In 2013, it stood at 11 percent of GNI*. By last year it had fallen to 8 per cent.
Equally concerning is McWilliams assertion that workers’ wages are leading to higher inflation – the alleged ‘wage-price spiral’. This oft-repeated orthodoxy ignores more recent findings. The Central Bank found the main source of domestically-produced inflation during the height of the cost-of-living crisis was not wage growth, but the significant increase in profits. The IMF undertook a seminal analysis of 79 inflationary periods going back to the 1960s and found almost no evidence of wages driving inflation. We need a real-world analysis of the drivers of inflation, not flawed theories like wage-price spirals.
MacWilliams accepts that public sector productivity is very difficult to assess. Rightly so. How do you measure the work of health and transport workers, hospital cleaners and caterers, and so many others in the extreme conditions of the Covid pandemic; energy workers in repairing lines and local authority workers fighting floods and keeping our roads network clear in hazardous weather conditions; Gardai and firefighters protecting lives, businesses and even democracy itself against far-right threats as witnessed recently in our capital city? Throughout the public and private sectors workers go further to ensure their work is done despite difficult conditions. What price to you put on that?
There are three areas in which the public services can play a positive and innovative role in the economy.
First, how can public services help tackle Ireland’s high living costs? The small steps the Government has recently taken provide a big clue.
During a period of rising inflation, the price of many government services actually fell: hospital services, education, public transport and childcare. This was achieved by either reducing prices (e.g. buses), introducing free provision (e.g. schoolbooks) and freezing fees (childcare).
We need to expand and deepen this process of reducing administered prices. In this way, public services can be an instrument for reducing Ireland’s high living costs.
Second, the management of public services is ultimately the responsibility of the relevant Minister and the Government. Such management is not helped by the relative under-funding of our public services. We’d have to spend an additional €7 to €9 billion per year on public services to reach the average of our peer group average in the EU – other high-income economies.
But a real deficit in the management of public services is the lack of worker input into decision-making. The women and men who produce the services are well-placed to propose and implement measures to boost service quality and efficiency. This ‘employee-driven innovation’ features in other European countries and has proven highly successful. Increasing public sector productivity starts with workers, leveraging their skills, experience and ideas.
Third, several commentators claim that public sector pay is well in excess of private sector wages. However, the CSO regularly takes a deep dive into this issue, conducting a like-for-like comparison of pay in comparable occupations. Their latest survey in 2018 shows that, overall, public and private sector pay are broadly the same. However, within this equality of pay there is a major difference.
Because the pay structure in the public sector is more egalitarian with the gap between the highest and lowest paid much lower than in the private sector, public sector workers in lower-income groups are paid more than their private sector counterparts, while public sector workers in higher income groups are paid less. The gender pay gap in the public sector is similarly much lower. This is not an accident. Collective bargaining, which benefits lower-income groups, is widespread in the public sector but extremely limited in the private sector. Recently negotiated public sector pay deals have given additional support to low and average-income sectors. Given that Ireland has one of the highest levels of wage-inequality in the EU. Such inequality degrades economic performance and social cohesion. The public sector pay structure could serve as a model for the entire economy – with comprehensive collective bargaining favouring the lower and average paid, thus creating greater prosperity.
Reducing living costs, driving innovation and reform, and reducing inequality shows the potential of the public sector. This requires a better politics. It also requires a better debate, responsible and well-informed. SIPTU, its members – both in the public and private sector – and the wider trade union movement are ready for both this debate and this politics.