ANALYSIS:Siptu has produced yet another study of Irish wage trends – and managers would seem to have done best

AS THE prospect of budget pay cuts draws closer, public/private sector pay comparisons are as emotive as ever. Against this background, Manus O’Riordan, head of research at Siptu, has produced a study of wage trends in the Irish economy.

He rebuffs ESRI studies which concluded that the public sector has a premium of 20 to 30 per cent and is more kindly disposed to the CSO which has a lower, 10 to 20 per cent, range.

The major difference between the two has to do with size of organisation. The public sector is a big employer; if you take this into account it explains most of the differential between the two sets of figures.

My impression is that the CSO is getting the better of this argument. However, the whole thing is fiendishly complex. For example, the premium in favour of the public sector is highest at the lower end of the scale and turns negative at the very top. This runs counter to the widely held view that top civil servants are overpaid while those on lower incomes should be spared from cuts.

Not so, say the authors. It is common in other countries for lower-paid public servants to earn a premium so its existence is not necessarily an indication of overpayment.

Moreover, both the ESRI and the CSO estimates are based on 2007 or earlier data and, thus, take no account of recent developments, notably last year’s so-called public sector “pension levy”.

The core of the Siptu paper consists of a detailed comparative analysis of pay developments over the past decade. This does not address the size of any absolute gaps that might exist. Rather, it is a snapshot of developments over a period which included benchmarking.

It is also very partial, covering only a limited number of categories due to data limitations.

Siptu concludes that private industry manual workers had a cumulative real gain of 13.5 per cent over the 10 years; public sector employees had a real gain of twice this until the “pension levy” pulled it back to 17.6 per cent. Private sector managers and professionals did best of all with a rise of 33 per cent, 40 per cent plus if bonuses were properly counted.

The study, which is entirely historical, is entitled Separating Fact from Fiction on Earnings: the Use and Abuse of Statistics. The clear message is that the managers and professionals have done best and should, therefore, bear the brunt of any pay cuts.

However, the Siptu study is just as bedevilled with problems as the ones cited earlier. The CSO statistics used by Siptu relate to industry only; services are completely ignored. One can only imagine what is happening to wages in the hotel industry to take just one example. Second, they do not capture compositional shifts. If the lower paid are first to go and the sample is fixed, the average wage can appear to rise.

Siptu rightly claims that the pension levy is really a wage cut. However, the flip side of this is that contributions to public sector pensions have remained static at a time when their private sector counterparts are having their contributions raised or, worse still, forced to switch from defined benefit to defined contribution pensions. In addition, no account is taken of job security, a factor that is bigger than ever now.

There is only one conclusion to be drawn from all of this. It is madness to attempt to adjust public sector pay without a proper benchmarking exercise. Benchmarking allows individual jobs to be compared and can build in allowances for pensions, job security etc – I mean proper allowances, not the half-baked estimates that were included in previous benchmarking exercises.

Such an exercise could be done in a few months and it would be difficult for those affected to dispute the conclusions. Why it has not been done is a mystery.