Comparing public and private sectors is not like for like

There are benefits and drawbacks to the system but any solution needs to address the cost-of-living crisis, writes Eoin O’Malley

THE average weekly wage in the public sector is €906 compared to an average wage in the private sector of €645, according to Central Statistics Office data.

A top-of-the-head calculation shows this pay is about 40pc higher in the public sector. That’s a big difference.

Given that we spend about a quarter of Government revenue on pay and pensions, we might think that, instead of devoting the State’s resources to restoring public sector pay, we should think about cutting it further.

But the public-private pay gap isn’t as simple as that. The public pay premium exists in most European countries, and there’s a reason for this topline figure: it doesn’t compare like with like.

The public sector doesn’t do the same things that the private sector does and so the people who work in the public sector are, on average, different to those in the private sector. Most people employed in the public sector are in the areas of education (teachers and lecturers), health (nurses and doctors) and security (gardai and soldiers). Most of these professions require training and qualifications.

So we have to take into account that those in the public sector, on average, are better qualified, have more experience and do different jobs to those in the private sector. When we do we can see that much of this public pay premium falls away.

Last year, the Central Statistics Office released a paper, racily titled Specific Analysis of the Public/Private Sector Pay Differential for National Employment Survey 2009 & 2010 Data.

It took into account experience and the fact that public sector employees pay a pension levy on top of other taxes. The levy is not a social insurance contribution. The report does not give clear figures, but the effect of controlling for experience and the pension levy (and it doesn’t take into account other factors) shows that much of the public pay premium falls away.

It is clear that the public pay premium isn’t uniform. It differs depending on where you work and how much experience and what qualifications you have. Another report, The Public-Private Sector Pay Gap in Ireland: What Lies Beneath? by the Economic and Social Research Institute, uses data from the early 2000s. The report shows that the pay premium is greater in education than in the civil service.

Interestingly, one of the areas that has no pay premium is the Army. Most soldiers could do better in the private sector. We can also compare bus drivers, who arguably have a harder job than Luas drivers in the private sector as they have to deal with passengers and traffic. Data gathered by the Sunday Independent shows that a bus driver of six years earns about €40,000, whereas the Luas driver earns €41,000. There’s no public pay premium there.

The pay premium isn’t consistent across the levels people are at. A lot of the policy debate has been about restoring pay for the lowest earners in the public sector.

The Central Statistics Office report supports comparative EU-wide findings that the lower paid enjoy the highest public pay premium. That means Government policy is to create a class of people who are far better paid than their private sector equivalents.

By contrast, the highest paid in the public sector have little or no pay premium when compared with equivalents. If we want to attract talent, perhaps the emphasis should be on pay restoration for more senior public servants?

But it’s not as simple as that. Even if the public pay premium isn’t as great as the headline figure suggests, those of us in the public sector enjoy other benefits. My generation doesn’t have the gold-plated pensions of our ancestors, but our pensions are a real benefit compared to most of those available in the private sector. More so than the pension premium is the security the public sector provides.

Public sector pay may not go up as fast as wages in the private sector, but at least you aren’t going to lose your job when bad times hit. At a time when many young people deal with increasingly precarious work conditions, this benefit is significant.

There is a downside for us though. It probably means the public sector attracts more cautious people than the private sector. Many public sector jobs are permanent and career-based. You can’t lose your job if the role you have is no longer needed. This should give people the security to be more adventurous and innovative, but I’m not sure it does.

RTE announced last week that it was outsourcing children’s programming, but no one will lose their jobs. No one would accuse RTE of being cutting edge.

Though it’s not without its downsides, it might be time to move further towards a position-based system in the public sector. Do people really want to work in the same place for 30 years? By giving them golden handcuffs, public servants aren’t encouraged to move in and out of the public sector, change jobs and pick up experience as we might want them to.

But these are long-term choices we need to think about. In the short term, we have seen increased wage demands from public sector workers. Many seem reasonable. Young teachers, nurses and gardai face spending half their income on rent.

The problem is that pay rises for them also mean pay rises for older teachers, older nurses and older gardai, and potentially retired public servants. These people don’t have a cost-of-living crisis.

Pay in the public sector isn’t low. But costs facing people in the public and private sectors, especially the young, are too high.

Restoring pay doesn’t improve our public services — raising employment might do that. It might help young public servants, but that should not be the Government’s job. Its job is to deliver services and fix failing markets.

If it concentrated on fixing the housing market — the big expense facing most young people — the Government could make these public sector pay demands go away.

‘Wage rises for the young also go to the old, who don’t have a costs crisis’