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Dublin: 6 °C Saturday 25 May, 2013

Column: Slashing wages will hurt everybody – the case for Croke Park

It’s in everyone’s interest to keep the Croke Park deal, writes Michael Taft – private sector jobs are at stake too.

Michael Taft

With debate continuing over the future of the Croke Park Agreement, TheJournal.ie presents the argument from both points of view. To read the other side, click here.

CALLS TO RENEGOTIATE the Croke Park Agreement are really just calls to cut public sector pay.

I’m not aware of calls to renegotiate the process of reform (for example, from the current management-led process to an employee/user-led reform). No, it’s all about cutting pay. Very few making such calls reflect on why past cuts have failed to restore fiscal stability and economic growth; after all, we’ve had a 14 percent pay cut to date. Nor do they consider what the impact of further cuts will be on the economy. No evidence is put forward to justify cuts – just a demand, repeated over and over again.

We can, however, examine the evidence. The ESRI has measured the impact of cutting public sector pay by €1 billion – equivalent to an across-the-board cut of approximately 6 percent. They found that such a pay cut would wipe out half a billion euro from the domestic economy (as measured by GNP), rising to over €700 million by 2015. Given that the IMF projects that next year GNP growth will be half of what the Government is hoping for, cutting public sector pay will make this situation worse – and possibly keep the domestic economy in recession.

What impact will pay cuts have on private sector jobs? After all, cutting peoples’ pay = reduced disposable income = reduced demand = jobs at risk. The ESRI projects that a cut next year would destroy up to 4,000 jobs by 2015.

How many businesses will go out of businesses if public sector pay is cut? The ESRI estimates that consumer spending will fall by over €700 million next year and €2.5 billion over the next three years cumulatively. That’s a lot of money being taken from tills and cash registers of businesses up and down the country. How many businesses will fold as a result?

Little help, lots of damage

Falling growth, jobs lost and more businesses up against the wall – some might say it’s worth it if we can bring our public finances under control. Yet, according to the ESRI, a €1billion cut in public sector pay will – when lower growth, job losses, and reduced demand are factored in – reduce the deficit by only €479 million, less than half the headline rate. Indeed, when compared to other fiscal measures (income, property and carbon taxes; cuts in public sector employment and investment), cutting public sector pay is the least effective in reducing the deficit. The Government needs to reduce the borrowing requirement by over €11 billion by 2015. Cutting public sector pay will be of little help but will inflict a lot of damage on all of us.

The final argument is that if we don’t cut public sector pay we’ll have to cut front-line services, social protection or investment. No we don’t. The Troika doesn’t dictate the adjustments, just the deficit reduction. Yet, after €24 billion of spending cuts and tax increases the underlying day-to-day (current budget) Government deficit is getting worse.
Spending cuts, tax increases and a deteriorating day-to-deficit: we don’t need to renegotiate Croke Park. We need to renegotiate the Government’s austerity strategy. And put in place something better, something that works.

Michael Taft is Research Officer with UNITE the Union; author of the political economy blog Notes on the Front; and a member of the TASC Economists Network.

You can read more from Michael Taft here.

Column: We just can’t afford it any more – the case against Croke Park>

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Comments (37 Comments)

  • There needs to be 2 agreements, one for the lower paid and one for the high paid. It’s totally unfair that every PS worker is deemed the same. I dont get allowances company cars bonuses. I used to earn more money when I was in a part time job packing bags then Ido now.

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    • I think the front line sector needs to be separated from the bulk of the public sector. It’s not a normal 9-5 job and the risks to physical and mental health are far higher then those that sit behind a desk.

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  • go after the top earners they contribute nothing in terms of there huge obese wage deals leave the real workers in the public sector alone

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  • instead of debating public vrs private sector average wage, should we not be looking at the overall big picture and debate instead the disparity between the high and low earners in this country

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  • @sean public sector workers pay tax too. They also need to avail of these services. This public sector v private sector is boring at the point. Quite clearly some of the allowances are ridiculous and no one is against getting rid of some of these but only a small amount of people get these. I earned a lot more in private sector 10 years ago than I earn now. Wealthy in this country need to be tackled and large business should be paying higher tax.

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  • The david McWilliams analogy of putting an anorexic girl on a diet and hoping she ll get better again .dont know about top public servants(well I do) but frontline workers like me have lost 50% of their pay thro.no further over time ,a 14 % pay cut ,universal social charge and pay related deductions . I still have the same mortgage to pay ,my children are trying to do 3.rd level (have to delay that) the cost of travel (oil) is gone up so am wondering would I b better if I had never worked ,went to the council and said ” house me ” and never spent 12 hours a day literally breaking my ba ck ( recent hip replacement) what was that 30 years about I know I know it was so I could pay a household charge before I bowed out .

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  • All we ask is for people to do a proper days work for their days pay, that’s it….

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  • Phil G 15/09/12 #

    87% of public service earn less than 50k, 68% earn less than 38k,43% earn less than €30k. Hardly high earners. Let’s not forget these people spend money(whats left after bills) in the private sector . Cutting their pay will reduce their spending power. Never mind less paye and prsi been paid. The couple who live beside me have more disposable income because their on social welfare ,dole ,rent allowance,fuel,back to school,ESB allowance. And they don’t have to join the rat race at 7am every morning !

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  • Absolutely spot on. The vast majority of public servants make less than the average industrial wage, and have to spend every penny they make in the local economy just to keep their heads above water. They are also, due to the security of their work, more likely to have loans approved and be able to help keep retailers of larger goods in business.

    People need to take their blinkers off.

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  • But apparently they should get perks and bonuses, while their employer, the state, is in receivership? What kind of logic is that? This is a reality that this article, and many other, fail to mention. There employer is bankrupt so why should they be protected? Where is the fairness in that? What makes an accountant in the Civil Service more important than one in the private sector? People are people, and we are all suffering, so claiming the economy will suffer by attacking the civil service is a bit disingenuous and misleading, to say the least. The harsh fiscal realities are dictating the fate of our private sector, but you seem to believe the public sector should be encased and protected, even though that means wider society suffers? It’s ridiculous logic, regardless of how you spin it.

    All top earners in the civil service need to have their pay slashed, so as to protect the pay of front line services and ensure urgent positions can be filled. Their increments need to reviewed and any pay rises removed or put on hold until things start to pick up. Those who earn the least must be protected and those that can afford the most cuts must take them. The fact the government are even discussing cutting nurses or guards pay, instead of the top earners, shows clearly the skewered top down way they view the world. Fine Gaels Ireland is an unjust and unequal place, where the wealthy are protected, at all costs.
    Croke Park must go in the interest of fairness, but the top end of the scale need to take any future pain. It’s not rocket science, and pretending guards nurses etc should bear the brunt of this fiscal correction is playing into the hands of the top earners, who are glad to see ordinary people tearing strips of each other, while they quietly claim ridiculously bloated salaries, protected by overpaid and underworked unions.

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    • What perks and bonuses?

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    • @Daisy- By bonuses I mean monies given to people for just turning up for work and simply doing the job they are already being paid for, often handsomely. Also, yearly pay rises for loyalty should be stopped. Given the unfairness in some of the existing pay packets, it seems strange that people need to be rewarded for staying in their job? There are other instances, such as yearly incremental salary rises that need to be halted immediately. There employer, the state, is broke, so such payments should not be even considered. Why should necessary services be cut to maintain these payments? And, as we’ve seen by Minister Reillys actions that is exactly what will happen.
      Front line services need to be protected, at all costs, so therefore top earners and bonuses, particularly amounts paid to those at the top end of the pay scale, should and must be tackled. Politicians also need another pay cut. The logic for paying our Taoiseach 200 thousand Euro is beyond me. These are a few ways that we can start to address the inequality that is inherent in the system. We have to save nurses our guards. Their positions are too important to jeopardise, and given our financial uncertainty that is what we are doing by allowing increments etc to continue. They are the people we should protect, not the wealthy at the top. Those who can afford the most must pay the most, so that our ailing services don’t come crashing down around our ears.

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    • Again, what perks and bonuses?? Come in and do my job for a week and see what you have to do for my modest pay…. I’m rostered for 70hrs of nights next week …. You can start there!!!

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  • The Argument is not to cut the bill of public sector pay, the argument is to get better value for what the tax payer spends. Maybe in fact the state could employ more people but keep the same wage bill and achieve a much better public service. Why is nobody talking about this angle? Everyone knows the current structure is poor value, badly run with no motivated staff and colossal inefficiencies. There is a better way.

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    • Public sector should get 21 days holidays like the rest of us. Cut out every, single perk that they get. Increase their pension contributions, so that it might bear some relation to what they get paid when they retire. If a teacher finishes up at €60k a year, they’ll get €30k pension? Whatever trouble we’re in now, Armageddon is due in 20 years time.

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    • Wayne, the fact that such a reasonable suggestion, which is the norm for anyone living in the real world of the private sector, got so many thumbs down shows just how out of touch and cosseted the public sector is. The only good thing that could come from the depression we are currently in is if it leads to a more streamlined public service, which no longer wastes such a huge proportion of our taxes. We certainly won’t get it while the CPA exists as it protects them from reality and despite government spin has led to very little real changes. As for the claims of big drops in pay, nonsense, it’s going to pay towards their pensions which currently are paid out of current expenditure. Ideally the public service should have far lower pensions and pay a far greater proportion towards them.

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    • I’m a teacher and I hear this holiday crap every day. I don’t get bonuses, I can get fired (struck off the teaching council register = no pay), I’m in the school at 8:30am, leave at 5:30, cook dinner then prepare lessons or mark papers from the day before from 7-10 most evening. Today is Saturday and i’m planning lessons, getting videos for class, making worksheets up, homework sheets. Tomorrow i’ll spend 3-4 hours doing the same. On Monday morning i’ve to go in early to cut timber for students for projects, when the exam briefs for projects come out i’ll be staying late two nights a week to help students with their piece, I’ll be in from 5-10 for about 15 nights throughout the year be it a school plays, musicals, enrollment, graduation, awards or curriculum planning. I also take soccer and gaelic in the school which is two evenings a week.

      With all that in mind, I can guarantee if public sector pay is cut AGAIN, i’ll TRY to squeeze all that in when the bell goes at 9am. I’ll come into my classes, ask my kids to stay quiet while I search the internet for content to teach them. When I put it altogether with videos, images and relevant content, the bell will go and i’ll teach it to them the next class. This will repeat over and over. Sometimes it takes me 2 hours to prepare an double lesson so they’ll sit still for that time while I work. I’ll write feedback on what is good and bad while they wait for me quietly in the lesson. When i’ve done that i’ll ask them again to wait quietly while I prepare a new lesson. I’ll not take kids for soccer and gaelic, i’ll mark their homework while they wait in class for me to correct it. When your child comes to enrol there will be no one there to show them where to sign, what the school is like and i’ll not have to show them what sports we do because we won’t be running any extra curricular activities. When your child does something great and deserves to be rewarded don’t expect it. There will be none because I won’t come in past 4pm to give it to them. I work hard during the year, very hard. I want what is best for the kids I teach. On Wednesday when Jr Cert students got their results and thank you for all the work you put in helping them do well. When leaving cert students sends in cards to thank you for helping them get to college, setting them up for life is what makes me and most others do it.

      I’ll work for what i’m paid for, not what i’m expected to do. And expected that is, by you, the parents of these kids.

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    • Mick 16/09/12 #

      Conor, go get some time management lessons …I’ve plenty friends that are loving the hours it gives them.. They are out training teams at nite(getting paid of course, before you come back to me saying its community service!) loving the holidays, living the pay, loving the security…

      Reply
  • A few basic concepts that are invariably Ignored in this discussion:

    Tax producers- Net generators of revenues for the economy and state. Examples- most private sector workers and businesses

    Tax consumers- Net consumers of government revenues. Examples- Public sector workers, those on state benefits, some private sector workers.

    The argument that reducing public sector pay will shrink the economy is fallacious. In the absence, of a governments ability to raise funds through borrowing, correcting a public finances deficit will have a contractionary effect on the economy. The question is whether the correction is achieved through increased taxation or reduced spending. The former has a more devastating and longlasting impact on the economy. The former a more short term impact.

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  • Michael Taft is possibly the only economist in this state who has ‘gotten’ this crisis from the start. That so many comments appear to take him to task displays a lack of critical awareness and they could do worse than to educate themselves by reading his blog ‘notes on the front’.

    It’s an interesting comparison between Keith Redmond’s piece on Croke Park and Michael Taft’s. The former is entirely fact free, has no grasp of the nuances of public sector pay and plays to the gallery. That an educated professional would use such stupid, and that’s being charitable, argumentation and ratiocination is a damning indictment of the intellectual level of many of our ‘common sense’ upper middle-class professionals. Micheal’s contribution, by contrast, sets out the real economic cost that will follow from a further reduction in public sector pay. And there will be real economic consequences to cutting public sector pay which will throw thousands in the private sector out of work, but not Keith who will continue looking after the dental needs of hedge fund and merchant bank operatives (would it be impolite to raise the 7 billion plus paid the unsecured bondholders so far this year by the Irish taxpayer, both in the public and private sector? Yes, better not raise those taboo issues).

    Keith Redmond is an individual completely lacking in self-awareness, hence the membership of the PDs, I suppose. His practice does not take medical cards (ruling out many private sector worker struggling to get by) if you’re in dental distress and on the median income don’t come a runnin’ to Keithy boy and chums unless you’ve first visited the bank manager! I don’t think I’ve ever read such a gruesomely hypocritical article in my life and absolutely typical of the right wing medical ‘entrepreneurs’ who are proliferating in this society like a plague, intent, as they are, on denying basic services to citizens who can’t pay their exorbitant fees and are instead focusing on providing glitzly practices in the IFSC while hundreds of thousands of their fellow citizens endure pain and dental decay because the 100 euro plus that it costs to see Keith for a few minutes is way beyond their financial capability (if you don’t believe me call Redmond-Molloy and ask how much it costs for an appointment, which includes an x-ray for 40 euros).

    Redmond quotes a figure of the average private sector salary of 600 euro. That’s actually higher than the median wage (ca. 27,000 p.a.) and it’s explained by the hundreds of thousands working in the private sector who earn between 10,000 per year and 20,000 per year being balanced out by the 30,000 or so who earn hundreds of thousands and more (including Keith, no doubt).

    Redmond’s disgusting invocation of Jim Larkin (Keithy must have read Eddie Molloy’s diatribes in the Irish Times, our Keith’s an original thinker!!) reveals his lack of self-awareness alluded to above. If private sector workers began to organise in this state to increase their wages and conditions, Keith and his cohorts would be shrieking from the rooftops about how giving a forklift driver an extra 1000 euro a year pay increase would damage ‘our’ competitiveness. Were there constant strikes in this state (which there would be if Jim Larkin’s spiritual heirs were leading the trade union movement here) in search of better pay for workers in the private sector, and there was no parallel industrial militancy in the public sector, Keith would be writing articles about how the militant private sector should copy the quiescent public sector.

    I’ll say to Keith what I say to all business people who are anti-public sector: put up a notice in your practice that all patients who work in the public sector must pay a premium, equal to that between the public sector and private sector average wage that he cites (it’s bullshit but he seems to believe it), and have the courage of his convictions. However, I can assure him that many public servants will not (ever!) be in a position to frequent his practices given the charges he currently levies.

    But hey, it’s the public sector worker on 40-50k that’s killing this country. Did I mention the 7 billion paid so far this year to unsecured bondholders? I think I did. But remember, kids, your teacher is the enemy! Perhaps the PDs will dust down some of Chairman Mao’s manuals from the cultural revolution and we can look forward to teachers standing with heads bowed at the top of the class while two or three 12 year olds batter them with copies of the EU-IMF Memorandum of Understanding and demand that said teachers denounce the ‘running dogs’ and ‘lackeys’ who seek to defy the terms of the Troika by demanding a decent income for all.

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    • Mick 16/09/12 #

      IMF please come in and make sure the croke park agreement is torn up..and if middle management protest that they are not getting their over paid wages anymore then fire them. Get some one that will do the jobs for much less and would probably be better at them anyway…I don’t think most front line staff should be effected though, except for teachers…they are well over paid..compared to other countries… Which is the only real barometer people can go to.

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    • If you are going to critique both articles, please critique how the pro CPA article finishes with “‘something’ that works”. To me this screams, oh just do something else, but leave the CPA alone. I am sure the MT is an excellent economic thinker, so surely he can outline a solution as well as berate one.

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  • Lets start with Enda, why do we start at the bottom?

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  • Ah yes. By taking too much of other people’s money and even forcing them to borrow money to pay the PS bills, the PS is actually performing another public service.

    They’re so self sacrificing and altruistic.

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  • Even just the title of this piece is telling – when will the public sector learn to move away from the dramatic rhetoric of ‘slashing’ pay and face the reality that the country can’t afford an overpaid and unwieldy public service any more? It’s purely self righteousness that has the Unions clinging on to Croke Park for dear life, while the government ‘slashes’ core services to make up the deficit.

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  • why cant they start at the top, overpaid pensions, overpaid allowances, this is a recession and they can spend thousands on hotels and phones, pulling in the reins from the top may show some inniative, i have now had my phone cut off, so god bless anyone that wants to give me a job,,, do they care nope,, do they care about our elderly in home care nope,, they cut from the neediest, elderly and unemployed homeowners with mortgages,, keep hitting and they can house us all,,, but its like talking to a wall, troika must have them under there thumb to keep killing our country till there is nothing to stay for, years ago the germans bought alot of property in ireland,, looks like they will have it all if our government are allowed to carry on,, and yes i voted them in,, sad to say,, but ff, fg or labour will never get a vote from me again, they are not politicians only yes men to keep their salaries and perks

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  • censored 18/09/12 #

    ” They found that such a pay cut would wipe out half a billion euro from the domestic economy (as measured by GNP), rising to over €700 million by 2015″

    WOW so money really does grow on trees eh? It must do, since these payments clearly fall out of the sky or something and don’t come from taxation.

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  • In my book 30K IS high earnings and I don’t get anything near it. There’s a lot of so-called middle earners who are overpaid as well as a great many high earners. Of course everyone thinks they’re worth more, no matter what they’re getting. Just think there shoudn’t be such huge differences between the rich and the poor.

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