Wednesday, September 28, 2011

Public and Private Pay – Again!

The latest release from the CSO of the Earnings, Hours and Employment Costs Survey didn’t attract a huge amount of attention when published a few weeks ago.  Here are the figures that tend to get the most attention since the survey started back in 2008.

Gross Weekly Earnings

In the three years to the second quarter of 2011, average gross weekly earnings in the private sector have fallen from €637 to €612 (a drop of 3.9%).  Over the same time period average weekly earnings in the public sector have fallen from €931 to €901 (a drop of 3.2%).  We will multiply these weekly amounts by 52 to get an annual earnings figure for the “average” private and public sector worker.

For the private sector this equates to an annual wage of €33,104 in 2008 and €31,818 in 2011.  Using a basic tax calculator it can be shown that a single male with no additional credits or allowances would have seen his net pay fall from €28,421 in 2008 to €26,199 in 2011 – a drop of 7.8%.

For the public sector the annual equivalents are €48,387 in 2008 and €46,856 in 2011.  The same tax calculator shows that net pay would have fallen from €37,003 in 2008 to €30,590 in 2011 – a drop of 17.3%.

The 47% gap in gross average earnings between the public and private sector narrows to 16% when converted to net pay in this hugely simplified example.  Of course, there are major caveats excluded from this comparison.  The private sector worker here is making no pension contributions.  The public sector worker is contributing to a pension that will be worth more than the contributions could support.  Job security cannot be accounted for when using gross and net earnings.  The largest reason for the reduction in earnings in the economy has been job losses in the private sector.

All these factors, and more, are important when analysing wages in Ireland and just because they are excluded above is not an indication that they should be discounted.  The example is merely a device to give some insight into the changes that have occurred to pay packets over the past three years; the fall in the public sector has been over twice the fall in the private sector. 

This doesn’t mean that public sector pay should not continue to fall by more than private sector pay. A staggered wage cut from 0% for those at the bottom (with possibly even some increases) rising to maybe a cut of 12.5% through to the top of payscale (and maybe even more targeted than that), along with forthcoming general changes in income tax could bring the average fall in net pay in the public sector to 25% (with most of the latter burden shared by those above the average wage). 

A 25% cut in net pay would be a huge contribution from the public sector but what needs to be remembered is that we are already two-thirds of the way there.  At times this seems to get forgotten in the ongoing pay debate.


  1. Hi Seamus,

    Where does the 2/3 of the way there come from? The public sector gross average weekly wages are still nearly 50% higher than the private sector. The CSO graph you show indicates that the gap has started increasing again in the last quarter.

    Surely tinkering with income tax rates and bands is not dealing with the fundamental issue? Isn't the solution competition and privatisation?


  2. @ Steve

    Gross pay does not reflect the impact of the Public Sector Pension Levy. Also our progressive tax system does its job and any gap in gross pay is narrowed by the time net pay is calculated. The gap between public and private pay is not as large as the headlines might suggest.

    To fully analyse the difference you would also have to account for differences in the characteristics of each group - education, experience, responsilibility etc. Once these are accounted for the gap you perceive will be very different.

    It is also important to remember that the public pay figure is based on 350,000 civil and public servants and also 50,000 semi-state employees. Privatisation is a possibility for some of the semi-states but in many cases they are natural monopolies so the scope for competition is limited.

    It is hard to see how competition and privatisation are important when considering the 350,000 public servants (45,000 in the civil service, 116,000 in education, 130,000 in health, 25,000 in defence and an garda, 34,000 in regional bodies).

    What is the "fundamental issue" you refer to?