Does ‘Restoration Economics’ make sense?

By November 8, 2016Blog

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It’s a zero sum game chasing up a rising property market with demands for higher pay, where the most powerful and well organised squeeze the least powerful and disorganised in the fight for scarce resources. If that sounds familiar it should. The truth is that Ireland, if  a free for all takes root, may be poised once again to start eating its young and not just its young teachers or young Gardaí, by disproportionately rewarding those who need it least.

Young and low paid workers are being pummelled by runaway city landlord rents, there is high tax on modest pay, many private sector workers grapple with zero hour contracts and most will have little or no pensions at retirement.  Globally the impact of quantitative easing has disproportionately rewarded asset owners by adding trillions to shares and property values bypassing workers without houses, pension funds or shares. The disconnect was evident in the mood underlying Brexit and stands out most starkly in the core support fanned by Trump’s political advisors.  The question for Ireland is whether jacking up rates of pay across the public sector is either justified or economically sensible in addressing these issues here even if those on strike or threatening strike action feel genuinely and deeply aggrieved.

We do not have full transparency or granularity on public sector pay, putting external analysis at a disadvantage to the expertise of public sector trade unions and senior officials in the Civil Service but CSO data raises questions about the definition of ‘restoration’. It is reasonable to ask whether the restoration narrative that’s taken a foothold is real or overstated because of the bogus arguments used to support Bertie Ahern’s benchmarking which raised rates of pay on the entirely false case that those holding State guaranteed jobs were being under-priced during the Tiger.

The CSO reports that in the spring of 2008 the Garda force stood at 15,100 with average weekly earnings of €1,271, earning €29 per hour in a 44 hour week. This year the average hourly pay stood at €30.52 for 12,800 Gardaí averaging €1,304 across a 43 hour week. ASTI are currently in dispute but if it was purely about equality of pay, the existing teacher pay rates could be voluntarily reduced to help lift up new recruits. In 2008 the average weekly earnings in Education stood at €906 across 117,400 in the sector, today the average weekly earnings is the same for 113,000. In Health which had 138,000 on the payroll in spring 2008 the average weekly earnings was €882, today its €873 across 123,900. Civil Servants pay has fallen 7% since 2008 from €908 across 42,700 to €844 across 44,000.

What’s not routinely reported is the impact of enhanced early retirement costs on the pension debt. Those on highest pay within ten years of retirement left in large numbers so one would have thought that this would press down on averages, not so. Public workers will point to the hated pension levy but this is being eradicated for lower earners, which means the cost is past mostly to the private sector. A different issue is whether Gardaí have cause to be deeply frustrated?  Most of us think that they do, Gardaí suffer a management model clearly unfit for purpose, toxically infected by political interference and a workplace that rewards age over merit.

To what extent are increments, costing over a quarter billion a year closing out the pay gap? We don’t yet know but what we can tell with certainty is that biting taxes and rampant price increases in dysfunctional markets like housing and private health insurance are hurting but these are not exclusively public sector grievances.

The frustration for the majority of workers who do not have public sector contracts is that, once again, they are excluded both from the sharing of spoils and from the discussions on how they are to be carved up. The Public Sector Pay Commission is a repeat of insiders talking to insiders about their entitlements to the exclusion of the private sector who, for the most part, foot the bill.

Can the private sector rely on political advocates to ensure a fair shake out? Are you kidding, the political class is terrified of excessive public sector union power and the demonization of its opponents. There is not a single member of the Oireachtas who openly questions restoration economics or delves into the chronic instability of Ireland’s unfunded pension debt, to do so is deemed the political equivalent of skydiving with an elephant.

The right answer is to look after all workers and not just a powerful minority but that would require a shift in the perception that the dispersed private workforce is merely a compliant bystander lacking political muscle, in favour of a response that links improved economic and social indicators to lower tax on work while aggressively tackling dysfunctional markets that swallow excessive amounts of after tax income. Unhappily a return to a free for all that lacks cohesion across the sub groups that comprise our society will inevitably lead to another hard landing.