The Public Service Pay Commission: A New Approach to pay bargaining

The keynote speaker was the Minister for Public Expenditure and Reform, Paschal Donohoe TD. He was quick to point out how prevalent the focus on public pay was becoming of late. This has been due to internal pressures, such as the improving economy, but also external pressures such as Brexit.

He commented that this discussion over pay is an “Essential part of how a small, open economy responds to outside pressures. A core part of that response is how we manage pay within that, especially public sector”. This is especially true when looking at factors such as standard of services, the provision of those services, and competitiveness.

The Minister gave the crowd some figures, regarding the public sector pay bill over the last 16 years. In the period 2000–2008, the bill rose from €8.2bn to €17.2bn. The number of people employed by the public service increased by almost one-third (31%). The gross number of those working in the sector went up by 67,000, at a rate of approximately 3% per year. Analysis by the Department indicates that this growth accounts for a quarter of the increase in the pay bill (€2.5bn). Therefore, of larger effect to the pay bill were the rates of remuneration at the time, through pay deals, but especially as a result of the two rounds of benchmarking that occurred during the period.

“After 2000, wage competitiveness disintegrated.”

When the economic crisis was at its worst,

“Deeply painful measures were required to reduce rates of pay and number of people in our public service … [leading to] a €3.7bn reduction in the pay bill, reduced numbers by 32,000”, FEMPI legislation was introduced and “generated €2.1bn in pay savings, including pensions savings”.

The Minister spoke out in support of the sacrifice made by those working in the sector. He said,

“Public servants contributed a huge amount to the stabilisation of our national economy. Those measures were incredibly difficult and had a big effect on morale, on people’s lives. They went through our society, and communities like a wrecking ball.”

Going forward, then, the Government needed to develop a “Sustainable, fair and affordable way of planning”.

Addressing the title of the conference, Mr Donohoe said, “It is a new approach. We cannot afford a return to benchmarking, financially or socially.”

In conclusion, Mr Donohoe made three points:

1. “There is a very strong benefit to a collective approach and a great value in the industrial peace that did develop during benchmarking. Collective agreements have worked, do work, and can work again in the future. Reasonable and affordable pay increases are a normal part of a productive economy. However, we do not want to return to pay relativities and leap-frogging. We need an environment of economic stability that will deliver benefits for citizens and communities, and the opportunity for improvement in public services.”
2. The Government must provide “a context and structure within which the challenges and opportunities can be dealt with in a more effective way”.
3. They will take a two-phased approach to dealing with recent issues: a key part is research work, integrity and need for the PSPC and make sure they have space to do their work.

Tom Healy followed the Minister with a practical economic analysis of the position as it stands. Asking both “What do the figures tell us?” and “What do the figures not tell us?” For example, the figures can not tell us:

• How much different grades ought to be paid. “Economics is not a science, but is as much about the political environment” in which it operates. This gives way to moral issues like equity and fairness.
• The position and health of the fiscal space.

Mr Healy noted that the PSPC is simply a piece of a “large, complex jigsaw”.

What he called our “Extraordinary reliance on foreign direct investment” leaves us massively exposed in the medium- to long-term to outside forces. Figures show a huge difference in productivity between indigenous and foreign companies.

Another issue we have is that we put huge emphasis on personal consumption over personal consumption of public goods. Issues such as health insurance become hugely important when discussing wage. The cash transfer is key – people are paying out of pocket for services and it’s important to acknowledge that.

Another issue that is very prevalent in the Irish public sector is the unequal distribution of gross pay – Mr Healy noted that in that respect, we are close to North Korea in terms of the ratio of pay between a Secretary General of a Department and an Executive Officer. Currently, we use taxes and social transfer to even this out a little.

A simple narrative lacks a comprehensive view of these unique elements of our economy.

Mr Healy said,

“I for one refuse to go with … exchequer based-estimates that are potentially quite misleading, but are also irrelevant to the application of fiscal rules. Figures given have little or nothing to do with Government deficit.”

Basing wage issues on GPD is irrelevant, according to Mr Healy. He commented, “GPD is useless in the calculation of anything, except of course in the development of fiscal rules. We don’t know what it is or what it does.”

Finally, Mr Healy noted the lack of equity between different social groups. He noted that middle to senior grades in the public service are less well-paid than their equivalents in the private sector. However, this is only applicable if you focus on men. For women, there is a significant gap, especially at the bottom of the pay scale. “The gender issue is regularly absent in this debate”.

In summation, Mr Healy explained, “Differences need to be factored in to an explanatory statistical model.”

Liam Berney of the Irish Congress of Trade Unions (ICTU) spoke next.

His presentation began with the caveat:

“There is a context in which I would like to place my report,

“Congress [ICTU] has been actively seeking to rebalance the debate about pay and bring some focus to the idea that the debate about pay is not just about pay in the public sector. There are also pay problems in the private sector. We support the idea that all workers, in 2017, should seek 4% or €1000. This is good for the private sector. This feeds through to the public sector.”

He was firm in the assertion that the PSPC should not replace collective bargaining, which “demonstrated during the crisis that it does respond to the very difficult issues faced by the public finances”.

First and foremost for the PSPC should be the unwinding of the FEMPI legislation, and then a return to the collective bargaining table. While the Department of Finance have estimated that FEMPI will be completely unraveled and pay restored by the end of 2018, there is some expectation that it can be done quicker than that by workers. “Their patience may be tested if the 2018 deadline is not met.”

He also noted that “the PSPC can examine any labour market challenges they are allocated”. His suggestions were as follows. First, new entrant pay. In 2010, lower rates for new entrants were introduced. This measure was not agreed by the unions. This was “fine when you have no new entrants” such as it was during the employment embargo, but less so now.

Second, they should examine the issue of recruitment and retention in certain sectors – the difficulty in recruiting nurses, for example. Comparisons must be with similar jobs or equal work, cost of living in Ireland and abroad should be considered.

Third, job evaluation. Despite the demand on public sector workers, there is no structured system of job evaluation, it is and only has been done on an ad hoc basis; this learning has never been shared across the board.

Patricia Callan closed the first of the panels. She spoke of Public Service Pay in the context of national competitiveness. This information is coloured by Ms Callan’s position as CEO of the Small Firms Association (SFA).

She began her presentation by saying, “We’re not living in an ideal world.”

For small businesses, the number one concern is wage inflation. This is followed by the knowledge that business costs are rising, including insurance costs. As Mr Berney noted, rises in private sector pay trickles laterally to public service pay. Therefore, options should be explored to combat this.

Ms Callan said, “On all sides in the social partnership agree that Government spending needs to increase. We’ve had great jobs growth – but we are still below pre-crisis levels. Retail sales are still lower than at their peak.”

Notably, there is flexibility in the private sector to invest more in the skills that are in demand; this should be mirrored in the public sector.

Ms Callan’s main sentiment was thus:

“Industrial peace is desirable, but not at any cost.”

Benchmarking costs directly affected the business community through charges. The right methodology is needed and transparency is very important. That way we could see actual documented evidence of where the shortfalls are, and how to tackle them best.

Bill Roche of UCD’s Business School spoke after the mid-morning break. He set about putting “some of the discussions in a broader context of pay bargaining in the public service, since economic revival began 2011”.

Professor Roche and his colleague Tom Gormley have charted the genesis and analysis of the data presented.

During the period 2008–2010/1, the dominant picture of collective bargaining was focused around “Concession Bargaining” or “Collective Bargaining in reverse”. This was characterised by discussions where unions weren’t lodging claims on employers, but rather employers were demanding concessions of workers – employment security would be therefore enhanced.

After this, we began to see the emergence of “pattern bargaining”. This is the phenomenon wherein there was a consistent, persistent upward rise of 2% per annum in pay. This pattern spread through the other sectors as the revival began in earnest around 2011. “Pattern bargaining is almost entirely unknown in Ireland up until the period post-2007”, according to Mr Roche.

Mr Roche commented that,

“Competitiveness is a very tricky question, if we look at pay movements and trends in nominal union labour costs.”

Up until recently, trends were “orderly”: there was a dominance of the 2% norm; there was relatively little industrial conflict. In contrast, it is interesting to note how the norm has loosened increasingly in recent years, as a consequence of the very quick rebound of the economy, and the consequences of this.

He next took a brief look at the Whither injunction, calling it “somewhat propaganda”: it was, he noted, mostly irrelevant to most sections of the public sector, where you don’t have international labour markets

He commented on the “continuing of the modernisation agenda through the public service”. He also raised the question of performance-related pay. While such reviews that were done previously were not entirely positive or wholly praising, they are a reality in Anglo-American public service markets, in most of the OECD.

Michelle Ní Longain was the final speaker of the day, examining the FEMPI Acts, “as they came in”. The FEMPI, or Financial Emergency Measures in the Public Interest, Acts 2009–2013 are set amidst the context of

“a serious deterioration in State revenue”.

The brunt of the measures, as mentioned by Minister Donohoe, were borne by public sector workers during the crisis, and played a large role in the recovery of the country’s accounts. Now, they are unwinding, and the losses suffered by those effected are due to be rectified.

One of the main issues with the legislation is that the “agreement was not intended to be actionable … in the public law sphere only”. However,

“The law is always very small when you’re talking about something like this.”

There is a move, now, with the unwinding of the legislation, towards the Labour Relations Court.

FEMPI legislation states that the “Labour court has final and binding decisions” but under IR legislations, it is only a recommendation.

There is some legal work still to do when discussing the unwinding of the legislation.

Kieran Mulvey, a veteran of the LRC and WRC, commented on this by saying,

“the less IR has to do with law, the better.”

Mr Mulvey closed the conference by assuring everyone that the new PSPC was perhaps not a venture into “unchartered waters, but into a different current in the same waters.”