Wages and Salaries in the Labour Costs of the EU14

Eurostat produce a quarterly labour cost index. A number of sub-components are also produced. Here is the ‘wages and salaries’ component for the Business Economies (NACE B to N) of the EU14 (the previous EU15 now excluding the UK) with Q1 2013 set equal to 100.

All the selected countries have seen nominal hourly wage growth over the period ranging from 43 per cent in Austria to 13 per cent in Italy.  Ireland is second-ranked with an increase of 33 per cent over the period, along with Germany.

Next, we look at the annual growth rates with a four-quarter trailing moving average taken to smooth out some of the volatility in the series.

We seen that annual nominal hourly wage growth in Ireland is fairly stable over the past few years, averaging close to 4 per cent since 2018. This would enough to be Ireland, top of the group in 2019 and again briefly in 2020 but accelerations in many countries has seen Ireland’s relative position drop towards the bottom and is now close to Sweden, Denmark and Finland.

Of course, nominal changes are just changes in numbers. We want to assess real changes, i,.e. changes in the purchasing power of wages. To do that we must adjust for changes in the price level. We will do that with Eurostat’s Harmonised Index of Consumer Prices (HICP).  Here it ins since 2014, with the start of that year set equal to 100.

We can see that the HICP for Ireland was remarkably stably through the most of the period shown. In the HICP for Q4 2020 was little changed from what it has been in Q1 2014, i.e. there was no inflation over the period.  This certainly changed in 2021.  In the last couple of years, prices have risen by around 20 per cent in most of the selected countries. However, the reasons for the inflation have largely been common the relative ranking is largely unchanged.

Compared to Q1 2014, Ireland’s HICP was 18 per cent higher in Q2 of this year. This was the third-lowest increase in the EU14 with Greece and Denmark seeing smaller increases.  The largest increase was in Austria where the HICP was over 30 per cent higher compared to its level in 2014.

Inflation rates are coming down. The use of a four-quarter moving average understates the extent of the recent falls in inflation rates.

Our purpose is to adjust the nominal wage growth rates for inflation. We see that Austria has both the highest nominal wage growth since 2014 (43 per cent) but also the highest price level increases over the same period (HICP +32% since 2014).  Here we combine both Eurostat datasets to get an index of real, i.e. inflation-adjusted, hourly wages.

Combining wage growth and HICP inflation sees the green line move to the top, but the last few years have seen a steep decline. From 2013 to the end of 2020, real wage growth is put at +20 per cent for Ireland, around five percentages points higher than any of the other selected countries. 

During 2021 and 2022, real wages declined as the rate of inflation outpaced the growth of nominal wages.  In recent quarters they have moved closer together and real wages have been stable in Ireland in 2023 though are now only +12 per cent compared to the start of 2013. Much of the gains made up to 2021 have been reversed.  Real hourly wages in Ireland are now back to where they were in 2019.

To conclude here are the latest real annual growth rates for hourly wages:

As shown by the levels, Ireland is back close to zero. Nominal hourly wages are up close to 4.5 per cent and the HICP is around five per cent higher than it was last year.

To better see the trends for individual countries we will use a four-quarter moving average to smooth out some of the volatility.

Ireland has ground to make up to get back to the top spot it held in the pre-COVID years.

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Why is the Irish “average wage” in the OECD Taxing Wages so low?

A few weeks ago the OECD published the 2018 update of their Taxing Wages publication.  There is plenty in the report worth chewing over but one minor issue that arises is the level of the “average wage” benchmark used for Ireland.

It doesn’t really appear to be anything too noteworthy.  It rises fairly rapidly up to 2008 (the figures are nominal so no account is taken of inflation), drops in 2009, has been edging upwards for the past three or four years or so, and is put at €36,800 for 2017.

But what about when we look at it in a comparative context?  OK, an international comparison  isn’t as straightforward as looking at a single country through time but we can overcome some issues if we look at countries that share a common currency. 

Here are the nominal average wages used for 2016 for a group of euro-area countries.

• Netherlands €50,120
• Germany €48,300
• Belgium €46,528
• Austria €45,073
• Finland €43,716
• France €37,906
• Ireland €35,430

So, we still haven’t adjusted for prices but some of the gaps here are very large.  Is the nominal average wage in Ireland 27 per cent lower than Germany and 29 per cent lower than The Netherlands?

The OECD also has an Annual Wages publication which uses aggregate data from the national accounts to work out an average wage.  As the notes say:

Average annual wages per full-time equivalent dependent employee are obtained by dividing the national-accounts-based total wage bill by the average number of employees in the total economy, which is then multiplied by the ratio of average usual weekly hours per full-time employee to average usually weekly hours for all employees.

So what does this tell us?  Here are the 2016 averages from this dataset.

• Ireland €51,336
• Netherlands €46,709
• Belgium €43,097
• Austria €41,421
• Finland €41,209
• Germany €38,302
• France €36,809

Of the selected group Ireland has gone from last to first with a 44 per cent rise in the estimated annual average wage as measured using the national accounts versus that used in Taxing Wages.  For most of the other countries the difference is only a few per cent – bar Germany where the national accounts show an average that is over 20 per cent lower.  Still by far the greatest absolute difference is for Ireland.

So,what explains it?  Perhaps it is coverage.  The national accounts cover the entire economy where the Taxes Wages figure is derived from NACE sectors B to N, i.e. the business economy which excludes state-dominated sectors such as education and health. But this coverage is the same for all countries.

The answer lies in the annex of the Taxing Wages report. 

Table A4 shows the method used to calculate the average wage.  One piece is the type of workers covered.  There are columns which show whether supervisory or managerial workers are included.  There are 36 countries covered in Taxing Wages and 34 of them include both of these types of workers, many of which we can assume would be in the top half of the earnings distribution. 

Which countries do not have them included when the average is calculated? Turkey and Ireland.

Part-time workers are another category that get varying treatment across countries.  Some countries leave them out altogether and only include full-time employees when working out the average.  Other countries include them but do so on a full-time equivalent basis such that their earnings are included but are scaled up as if they were a full-time employee.  There are six countries who include part-time employees in the calculation but do so on the basis of their actual annual earnings as part-time workers.

In their notes the OECD say:

The worker is assumed to be full-time employed during the entire year without breaks for sickness or unemployment.  However, several countries are unable to separate and exclude part-time workers form the earnings figures (see Table A.4). Most of them report full-time equivalent wages in these cases.  In four countries (Chile, Ireland, Slovak Republic and Turkey), the wages of part-time workers can neither be excluded nor converted into full-time workers (for example, an OECD Secretariat analysis of available Eurostat earnings data for selected European countries has show that include part-time workers reduces average earnings by around 10%).

So, the Irish figures used in Taxing Wages exclude supervisory and managerial staff, and include part-time workers on an unadjusted basis. 

What would the Irish figure be if it was estimated in line with the practice for most other countries?  Figures on that basis are available from Eurostat’s Structure of Earnings Survey though it is only available every four years.  The averages (with part-time employees given on a full-time equivalent basis) for sectors B to N are given as:

• 2002: €33,320
• 2006: €40,761
• 2010 : €42,111
• 2014: €44,700

This would put Ireland pretty much in the middle of the set of countries used above. 

Would it make a difference if the 2017 average wage used for Ireland was €45,000 rather than €36,400?  It probably would.

The OECD show that a single person on the average wage in Ireland has taxes and social insurance deductions of just under 20 per cent of their gross wage.  If this calculation was done using an average of €45,000 then the deductions would be 25 per cent of gross wage. 

This is part of an infographic the OECD used to promote the publication of Taxing Wages

The OECD average is given as 25.5 per cent for 2017 and Ireland is included in the group of “low-tax” countries with tax rates for a single worker on the average wage of less than 20 per cent.  If an average wage was used that better reflected the actual outcomes in Ireland, in line with the methods used for other countries, then Ireland would be pretty much bang on the OECD average and would not be flagged (literally) on such infographics. 

Such a change would probably have limited impact on the estimated progressiveness of the Irish income tax system but it would change the range of values that are currently included in the analysis.  The OECD analysis extends up to earners on 167 per cent of the average wage.  This is around €60,000 with the average currently used but would be €75,000 if that was increased to the value proposed here.

If €45,000 was used for the Irish average wage (which the available data would support) then Ireland would not be down towards the bottom of charts like this.  This calculator puts the tax rate on a single person earning €45,000 in 2017 at 25 per cent.

If a more realistic average wage was used, Ireland would pretty much be the same as the OECD average (and rise maybe ten places higher) in the above chart.  So why is such an unrepresentative average wage used for Ireland in this important report? Tweet

The rise in aggregate wages and employee numbers

We know that employment growth as measured by the QNHS is now the most reliable ‘snapshot’ indicator of the performance of the Irish economy.  There are so many quirks to every observation of GDP and GNP that renders many patterns in them meaningless.

Total employment reached its nadir towards the end of 2012 and has been growing for the 30 months since.

The rough summary of employment is:

• Peak: 2,147,000 in Q2 2008
• Trough: 1,836,000 in Q3 2012 (down 311,000 or 14.5% from peak)
• Current: 1,930,000 in Q1 2015 (up 94,000 or 5.1% from trough, still 10.1% below peak)

But what impact has this recent rise in employment had on earnings?  Here is compensation of employees received by the household sector.

The rough summary for quarterly earnings is:

• Peak: €21,017 million in Q4 2008
• Trough: €16,996 million in Q1 2011 (down €4,021 million or 19.1% from peak)
• Current: €19,679 million in Q4 2014 (up €2,683 million or 15.8% from trough, still 6.3% below peak)

It can be seen that earnings fell further and have recovered faster.  This can be seen if we compare the annual changes in both.

Earnings fell faster but have been growing at around 5 per cent for the past year compared to around 2 per cent for employment growth.

The final issue is who has been paying the wages.  Here are wages paid by the corporate, government and household sectors.

Unsurprisingly, the corporate sector is by far the largest source of employee compensation and most of the growth comes from here.  Employee compensation from the government sector continues to decline (slowly) and payments from the household sector are rising (but from a low base).

If we index the above series we can get a better idea of the relative trends.  We will set them all equal to 100 in Q4 2008 when the total reached its peak.

Although there is some volatility it can be seen that the relative decline in compensation paid by the corporate and government sector were roughly in line through 2011 and 2012.  The series diverge from the start of 2013 with the red line rising and green line continuing its gradual decline. [It should also be noted that the green line does not reflect the Public Sector Pension Levy.]

The relative fall in wages paid by the household sector was the largest (possibly related to the self-employed and the nature of certain employments in the construction sector) but that too has been rising since the start of 2013.

Of course, these are aggregate data and take no account of the underlying employment totals.  So while aggregate earnings in the public and private sector may have tracked each other during the downturn, these reductions were achieved through different means.  This can be seen if we look at the number of employees in each sector.

And it is perhaps more easily identified if we index each. We will set them equal to 100 in Q2 2008.

Employee numbers in both the public and private sectors fell in 2009 and 2010 but private sector employee numbers fell much more rapidly up to the middle of 2011, from which time they began to show a tentative increase with these becoming more consistent from the beginning of 2013.  The ‘bump’ in public sector employment at the start of 2011 relates to Census 2011 but apart from that it has been a steady decline in numbers since 2009. 

As can be seen the relative fall in employee numbers in both sectors relative to the middle of 2008 is now identical – though the paths there were very different.

Private sector employee numbers reached a trough in Q1 2011 and have grown 94,500 (or 8.5%) since.  Public sector employment did not reach a trough until Q3 2014 (local minimum?).  Since then it has grown 2,700 (or 0.7%) since.  The annual changes for each are:

Although aggregate earnings to private sector employees are clearly rising, the story is not so cheery if we look at self-employed earnings.  The series shown below includes a bit more than self-employed earnings but it does not show the same increase that was for employee compensation shown above.

There is a hint of an increase over the past the two years – but no more than that.

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Public Sector Pay Cuts

Here is a table of possible pay changes under for some stylised sample public servants under the proposed public sector pay agreement.

The figures were produced by Joseph Byrne and Sons Actuaries for the 24/7 Alliance.  Without the specifics for all of the sample cases it is hard to analyse the figures.  The calculation for one of the cases (the 3.6% reduction for a Garda Sergeant at the top of the scale hired before 1995) is below the fold.

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Public Sector Pay Once Again

This is old ground but somehow we keep having to go over it.  Yesterday’s Sunday Independent features an incredible article from James Fitzsimons, who “is an independent financial adviser specialising in tax and financial planning”.  It is incredible because it contains so many errors.  It is nearly difficult to know where to begin.

THE Government that lives in La-La Land has just created Disneyland for 300,000 public servants.

There are around 350,000 public servants in Ireland.  The breakdown of these is provided in Table A2 of the Earnings and Labour Costs Survey from the CSO (see page 15).

The 300,000 number that is commonly used is the number of full-time equivalent public servants.  Staff employed on a part-time basis and those engaged in job-sharing are only included on a pro-rata basis to get to the 300,000 figure.  The latest figure from the Department of Public Expenditure and Reform is that there were 302,769.7 full-time equivalents in the public sector in Q2 2011.

It is proposed to cut 37,500 jobs by 2015. This is 11.72 per cent of the 2008 figures when they were at their peak. Mr Howlin claims the gross public sector pay bill will fall by €2.5bn.

Based on CSO figures, the average earnings are €901.07 per week in the public sector. The savings for a cut of 37,500 jobs would be about €1.76bn a year. If 10 per cent of earnings constituted tax, the real saving would be less than €1.6bn.

When working out the reduction in the gross public sector pay bill compared to 2008, Fitzsimons focuses solely on the 37,500 reduction in headcount and completely overlooks  the average 7% pay cut for all public servants that was announced in the December 2009 Budget.  The reduction in the gross pay bill from this measure was almost €750 million.  Once this is included it is clear the the €2.5 billion claim from Brendan Howlin is not that wide of the mark.

Fitzsimons then goes on to calculate some measure of “net savings”.  This time he seems to omit the impact of the Public Sector Pension Levy introduced in April 2009.  This levy had no impact on gross pay but did reduce net pay (by around €1 billion).

It is incredible that someone “specialising in tax” would suggest that 10% of earnings constitute tax.  The average earnings figure he uses (which we will return to) is equivalent to an annual income of just under €47,000.  Using a fairly simple tax calculator it can be seen that the net pay for a public sector worker is €30,600.  Of the €16,400 of deductions €2,200 is a pension contribution so the tax on this average worker is €14,200.  That is 30% of gross pay.  Why is a figure of 10% used in the article?

According to the CSO average pay in the public sector is €901.07 compared to €611.88 in the private sector.  We have previously considered the impact our progressive tax system has on the 47% differential.

It is also important to note that the average of €901.07 provided by the CSO is based on around 400,000 public sector workers.  This is because it includes just over 50,000 employees in semi-state companies.  These are not paid from government resources and have not been subject to the pay cuts, levies and other changes introduced in the public sector.

I have asked the CSO to provide a breakdown of average wages in the public sector under the same headings used in Table A2 in the Earnings and Labour Costs release.  I have been told that this figure is not available.  The €901.07 average is likely higher because of pay in the semi-states.

The McCarthy Report on state assets reports (Table 4.4, page 23) that average pay in December 2009 for the 40,000 employees in the semi-states considered under the terms of reference of the report was €54,600 or €1,050 per week.  If we apply this to the CSO data it means that average weekly pay for the public servants in the total is around €880.

A 2% difference may not seem that significant it would be useful if the correct figure was available.  I have made further requests to the CSO but nothing has been forthcoming.

If the average pay in the public service were brought in line with the private sector, it would be cut by 30 per cent. This is without taking account of the cost of public sector pensions. It would achieve annual savings of €5bn to €6bn. We need this now, not in 2015 or 2020.

We can get some crude measures using The Analysis of Exchequer Pay and Pensions 2006-2011 which gives total pay and employment numbers across a number of categories.  The measure of gross pay given here includes salaries, employers’ PRSI and employers’ pension contributions.  The figures given here are for 270,000 public servants paid from the Exchequer.  The table excludes about 30,000 local authority employees.  The total public sector pay bill will be around 10% higher than the figures given here.

In 2008 the gross Exchequer pay bill was €17.7 billion.  In 2011 it will be €16.2 billion.  There has been a drop of €1.5 billion or 8%.  Brendan Howlin is projecting a  further fall of €1 billion and a total drop of 14% on the 2008 level.

Exchequer net pay is calculated by subtracting employee pension contributions (€534 million in 2010), the public sector pension levy (€916 million) and some other minor appropriations-in-aid (€59 million).  Exchequer net pay has fallen from €17.1 billion in 2008 to €14.8 billion in 2011, a drop of 14%.  The projected fall to 2015 will be around 20%.

If a measure of net pay was provided to account for Income Tax, the changes to income tax would mean that the fall in net pay from the employees’ perspective would be greater than the 14% shown above.  We previously estimated this to be 17% for a public sector worker earning the average wage published by the CSO.

Fitzsimons argues that public sector pay should be cut by 30% now.  There is no evidence to support the claim that this will bring it “in line with the private sector”.  A 30% reduction in the 2011 gross pay bill would be €4.9 billion (or around €5.5 billion if local authorities are included).  It is claimed that this would “achieve annual savings of €5bn to €6bn”.

The actual saving would be much lower.  When questioning Howlin’s €2.5 billion figure at the start of the article Fitzsimons argues that the actual saving  would be lower because of lower tax revenue.  However when it comes to his own figure of €5-€6 billion he makes no such adjustments.

The cut in gross pay would reduce employee pension contributions (estimated c. €0.3 billion) , pension levy receipts (c. €0.3 billion) and income tax receipts (c. €1.25 billion).  Of course, there would also be loss of VAT and Excise Duty receipts as the pay reduction reduces consumption expenditure. 

The actual saving from a 30% cut in average pay in the public sector would actually be closer to €3 billion and not the €5-€6 billion claimed in the article.  If we went the whole hog and cut public sector pay by 100% the actual saving would be around €10 billion.  The deficit in 2011 will be €16 billion.  Public sector pay is not the only reason for the deficit so cannot be expected to be the only solution.

Public servants might have to suffer the same increases in VAT as the rest of us, but they have 50 per cent more income to cover the cost.

People pay VAT from net pay not gross pay.  Public servants have a higher gross pay than private sector workers but the effect of a progressive tax system and the Public Sector Pension Levy substantially narrow the gap.  The Pension Levy is not a pension contribution but is just a pay deduction.  This was made clear by Brendan Howlin in the Dail a few weeks ago.

The Trident report assumes that the pension related deduction, commonly called the public service pension levy, is a pension contribution. This is mistaken and the law could not be clearer. Section 7(2) of the Financial Emergency Measures in the Public Interest Act 2009 states: “(2) A deduction under section 2 is not a pension contribution for the purposes of the Pensions Act 1990”. The pension levy contribution is a misnomer. It was called that by the previous Government, but it is a levy on pay.

I hope it will not be a permanent feature, as I said to the unions when I met them. In my judgment, it is mistake for unions to characterise it as a pension contribution because the fear will be at a future date that it will be subsumed into the calculation of pension contributions. Under the auspices of the Financial Measures in the Public Interest Act 2009, it is not, by definition, a permanent measure. I hope it will not be a permanent measure, but, obviously for the foreseeable future, it is required.

Maybe it is too much to expect a tax specialist to know the difference between gross pay and net pay.  To finish here is the conclusion to my previous post on public sector pay.

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 with a 17% cut in net pay we are already two-thirds of the way there.  At times this seems to get forgotten in the ongoing pay debate.

And that is a 25% reduction in average net pay for those who are in the public sector.  By 2015 there will also have been a 10% reduction in the number of full-time equivalent employees in the public sector.

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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.

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.

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44% and all that

There has been surprising (well surprising to me anyway) response to a front-page article from last weekend’s Sunday Independent.  Here are some extracts from the article which ran under the headline:

Private-sector pay now 44% behind

The pay gap between workers in the public and private sectors has widened to 44 per cent since the recession began, according to a study carried out by a firm of international economic consultants.

The Indecon report, for the Sunday Independent, reveals that, on average, weekly pay in the public sector has increased by three per cent since 2007.

However, the Indecon report shows that, before tax, the average public sector worker earns €871 a week -- or €269 a week more than the average private sector worker, who receives €602 before tax.

There is no disputing that 871 is a number that is 44% higher than 602.  We could reverse the comparison and say that private sector workers get paid 31% less than public sector workers but that is just a different way of saying the same thing.  However, let’s focus on the 44% difference between public and private sector workers.

Firstly, these figures do not come from an “Indecon report for the Sunday Independent”.  These figures might be in this report but they actually come from the Central Statistics Office.  The CSO publishes a quarterly Earnings, Hours and Employment Costs Survey from which this information was drawn but the source was not cited.

The latest release of the EHECS was published on the 16th June (six weeks ago!) and can be read here.  There has been some analysis of the results of the EHECS on this site here.  Table 2 on page 6 of the EHECS release provides the figures that Indecon refer to: average weekly private sector pay is €602.85 and average weekly public sector pay is €871.09. 

Secondly, we will explore how real this 44% difference is for these notional “average” private and public sector workers.  In annual terms these weekly rates correspond to an annual salary of €31,348 for the  private sector and €45,297 for the public sector.

Using a fairly simple tax calculator we can work out the net pay of each worker.  The private sector worker earning €31,348 has a net pay of €25,875 or €498 per week.  The public sector worker earning €45,297 has a net pay of €29,993 or €577 per week.

Although in gross terms there is a 44% difference between the wage rates when we consider the take home pay the difference falls to 16%.  A €268 advantage for the public sector worker in gross weekly pay is reduced to €79 by the time the money reaches the worker’s pocket.

Here is a summary of the figures provided by the tax calculator.

Although some of the difference is accounted for tax and PRSI it is clear that the pension deduction of zero for the private sector worker and nearly five thousand for the public sector worker has a huge effect.

The pension deduction for the public sector worker of €4,886 is made up of two components:

• There is a €2,106 deduction as the employee contribution to the individual’s pension, and
• There is a €2,780 deduction for the Public Sector Pension Levy.

The above comparison is therefore not strictly valid as it compares a private sector worker making no pension provision against a public sector who is.  Next we will assume that the private sector worker makes a 7.5% pension contribution.  Here is the updated table.

In this instance the “average” public sector worker takes home 25% more than the “average” private sector worker making an employee pension contribution of 7.5%.  The private sector worker does not, nor cannot, pay the public sector pension levy so this seems a much fairer comparison to make. 

In any case, trying to suggest that the public sectors earns 44% more than the private sector is wide of the mark.  There is no doubt there is a difference, and I will leave it to others to debate the merits or otherwise of this, but it would be helpful if we could at least start the debate with meaningful figures.

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Wages remain ‘sticky’

UPDATE: The original version of this post was based on incorrect numbers that were posted to the CSO website yesterday.  This has now been corrected and so has this post.  The correct figures do not suggest that wages are as ‘sticky’ as the post title might suggest.

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As well as the QNHS, the CSO have today released the Q1 2011 Earnings, Hours and Employment Costs Survey.  Here are the average weekly earnings for the overall economy with the public and private sector averages also provided.

The average weekly wage in the economy in Q1 2008 was €704.  Three years later and after the deepest, and swiftest, recession this economy has seen the average weekly wage in the economy is €675.  Average gross weekly wages have fallen by 4.2%.  Income Tax increases will have further reduced net pay.

In the public sector, the last three years has seen the average weekly wage move from €905 to €871.  The drop below the Q1 2008 level that occurred in Q1 2011 is partially the result of 5,200 temporary employees hired for Census 2011.  If these employees are ignored average weekly gross pay in the public sector was €881.  Average weekly gross pay in the public sector is down 2.6% since the start of 2008 but is unchanged since Q1 2010.

This is even after the public sector wage cuts announced in the December 2009 budget which gave rise to the largest fall seen in the graph.  It should be noted that these gross figures do not account for the public sector pension levy introduced in April 2009 which resulted in an average 7% reduction in take home pay for public sector workers that was not applicable to private sector workers.

In the private sector average weekly wages have fall from €643 to €603, a fall of 6.2%.  It can also be seen that private sector wages have continued to fall with a 1.8% fall recorded in the year since Q1 2010.

A word of caution should be noted when interpreting these averages.  These averages are simply the total pay bill divided by the number of employees.  In recent times both the numerator and denominator of this ratio have been changing.  For example, although wages are showing little change, this could because job losses are concentrated among lower paid workers (causing average wages to rise), while wages fall for everyone else (causing average wages to fall).  The aggregate effect of this could be static average wages.

To show the effect of job losses here is an index of total earnings for the public and private sector. 

Gross earnings in the public sector are down about 6% since the start of 2008 (and over 10% since the end of 2008).  In the private sector gross earnings are down 24% on the start of 2008.

In both the public and private sectors aggregate earnings were largely unchanged during 2010 and the seasonal drop usually recoded in the first quarter is also seen in 2011.  Here is a snapshot of aggregate earnings for the entire economy.

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Earnings Data

We gave a brief look at the CSO earnings data last week.  Here we will consider the release in more detail.  We will start by looking at average weekly earnings. 

Since the first release of the Earnings, Hours and Employment Costs Survey (EHECS) in Q1 2008 average weekly earnings across the economy have fallen by 2.7%.  There has been a 5.4% fall in the private sector and a 0.2% fall in the public sector (though it should be noted that the public sector figures do not take the Public Sector Pension Levy into account as these are gross figures).    However, if we take the past year this has reversed as year public sector wages have fallen by 4.5% with only a 0.3% drop in private sector average earnings.

These public/private sector details and an analysis by the 15 activity sectors used by the CSO is provided below.  Click the table to enlarge.

When we look at the breakdown by sector we see that the top sector is Electricity, Water Supply and Waste Management which is now the only sector to have an average weekly wage of more than €1,000 euro and has shown the greatest increase since the start of the survey.  Accommodation and Food Service has remained the bottom category though it did show one of the three largest quarterly changes (shown in green).

In general the rankings of the categories have remained steady.  The only categories to show a change of more than one position are Education (6th to 8th), Administration and Support Services (12th to 14th) which both fell by two positions and Manufacturing (8th to 6th) which rose by two positions.   The biggest fall in weekly earnings has been in the Financial Insurance and Real Estate sector which has seen a fall of 16.4% but it still remains the third ranked sector.

As we have noted before the is only a rough barometer of average weekly earnings as it is simply the aggregate earnings divided by the number of employees.  Thus, in a sector in which a large number of low paid staff are let go this average would increase even if the average earnings of remaining employees were unchanged.  In fact, their earnings could be falling even as the average rate was rising.  So a word of caution is required when interpreting the above table.

What the EHECS is very good for is provided a guide to the level of aggregate earnings in the economy.  This takes account of earnings and the number of employees.  Here is an index of aggregate earnings since the start of the survey.

Aggregate earnings are down nearly 15% since the start of 2008 and although some moderation in the decline has occurred in 2010, they are still below the 2009 levels. This  goes a long way to explain why Income Tax receipts are performing so poorly this year.

We can break this down to look at the relative performance of earnings in the public  and private sectors. In terms of the changes in average weekly earnings the comparison is  broadly similar (once the pension levy is taken into consideration).  The aggregate earnings comparison is not so similar.

Aggregate private sector earnings are down nearly 20% with the equivalent figure for the public sector being a drop of less than 4%.  Public sector earnings were actually ahead of the Q1 2008 levels until the pay cuts introduced in last year’s Budget kicked in at the start of the 2010. 

The pension levy would go some way to narrowing this difference but a significant gap would still exist.  While weekly earnings in the private sector have shown a moderate decline, aggregate earnings have suffered because of huge cuts in employment.  The public sector has seen some reductions in weekly earnings but has been largely insulated from losses in employment.

The EHECS suggests that there has been a 202,100 reduction in the number of employees in the private sector since the start of 2008 – a fall of 15.0%.  In the public sector employee numbers have fallen by 14,900 – a fall of 3.6%.

The following table gives the aggregate earnings indices by sector.  Again click to enlarge.

Again, the Electricity, Water Supply and Waste Management sector performs best with aggregate earnings up 8.8% since the start of 2008.  Human Health and Social Work is the only other sector to show an increase over the same period.

The Construction sector  has seen aggregate earnings fall by over 55% which is 30 percentage points worse than any other sector.  Reductions of more than 20% have also been recorded for Administration and Support Services (-25.0%), Financial, Insurance and Real Estate (-24.6%), Professional, Scientific and Technical (-21.4%) and Information and Communications (-20.6%).

A table of the employment numbers, which along with the average weekly earnings data, was used to create this indices can be seen here.

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Earnings Data

After a wait of over four months since we last examined earnings data on the Irish economy, the CSO have released the latest update of the Earnings, Hours and Employment Costs Survey.  This gives updated data for Q3 2009 so there is a significant lag in how quickly the data is published.
The headline figure is that there was a small drop of 0.8% in weekly earning in Q3 2009 compared to the same period 12 months earlier.  However, it should be note that hourly pay actually increased by 1.8% with the drop in earnings driven by a fall in the weekly hours worked of 2.6%.
Average weekly earnings in the private sector fell by 2.7%, while there was an increase in average weekly earnings in the public sector of 1.9%.  Note though that these are gross earnings and the public sector figures ignore the effect of the public sector pension levy introduced in March 2009.  This levy reduced take home pay in the public sector by between 5% and 8%. 

	Average Weekly Earnings	Annual Change	Quarterly Change
Industry	778.47	+0.1	-2.1
Construction	736.74	-2.4	-0.5
Retail & Wholesale	492.17	-3.2	-0.8
Transport & Storage	709.43	-6.6	-6.8
Accommodation & Food Service	352.64	+0.6	+2.9
Information & Communication	925.39	-5.3	+0.8
Financial, Insurance & Real Estate	901.02	-2.3	-3.3
Administrative & Support Services	798.52	-0.1	-1.1
Professional, Scientific & Technical	466.77	-3.8	-5.5
Public Admin & Defence	982.08	+3.0	-1.0
Education	878.10	-1.9	+1.6
Health & Social Work	759.68	+4.6	+0.8
Arts, Entertainment & Others	462.41	-8.9	-2.3

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Earnings data: change or no change?

The CSO have published their latest release of the Earnings Hours and Employment Costs Survey (EHECS). The data give an insight into employment numbers and average earnings across the Irish economy. The survey began in Q1 2008 and replaces a number of sector surveys ran by the CSO.

The simplest comparison is between average weekly earnings in the public and private sectors as shown in the following graph.
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