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Public sector pay

I was asked to expand on something I tweeted about the other day on Public Sector pay in Ireland. Two things I need to say before I get into the meat of the subject. First, I got my information from posts on the Irish Economy blog. The recent one was on the Public Sector pay gap in a number of European countries, and the other was on what proportion of Government spending goes on wages and pensions. In both cases the articles refer to published reports. The second thing I want to say is this is not an exhaustive or definitive analysis. Be careful how you use the numbers I come up with below.

Anyway, the more recent report from the ECB on public sector pay just compared the premium that being a civil servant gives to your pay packet. The key piece of data though is that the Public sector pay premium in Ireland is about 30%, and it is one of the largest in Europe.

Their Irish data comes from previous studies dating up to 2007. I accept that things have changed since in the public sector, but they have also changed in the private sector as well. My employer has fired about 40% of its Irish workers and put the rest of us on a pay freeze for the last 3-4 years. And I think I got off lightly compared to friends who work in Chemical and Mechanical Engineering and Architecture. My point is, the data is still relevant. It also has to be pointed out that these studies control for all the usual factors like the job type, age, education, gender etc. So they are valid comparisons of private vs public pay. As far as I know what is omitted is pensions. And that is significant. Few people in the private sector are on the gilded defined benefit (DB) pensions public sector workers receive. My local HR team tells me that a DB pension is equivalent to 20% extra on a salary.

I wanted to do a back of the envelope estimate of what that 30% costs us. That took me to the other report, an update from the Government on their spending to the European Commission. I took two numbers from it. The share of spend on wages and pensions is 25.5% and the total spend is €26.7Bn (Compensation of “Employees and Intermediate Consumption” page 49). It’s a very crude estimate, ignoring the cost or premium of pensions, and the fact that the money may not be recoverable, but…

If Public Sector pay is 130% of Private, and the total bill is €26.7Bn, then making the public sector salaries equivalent would mean the cost is €26.7/1.3 = €20.5. And so the the annual premium we pay out is €26.7-€20.5 = €6.2Bn.

Even if we were only talking about half that sum, and we were able to reduce that premium from 30% to 20%, that’s €1Bn extra to spend on things that are a higher priority than a group who, however deserving they may be, really managed to clean up in the Celtic Tiger years.

The Great Game

I recently finished reading Peter Hopkirk’s “The Great Game”. It’s the account of the rivalry between Britain and Russia in central Asia in the 18th and 19th centuries. It’s an excellent account of the machinations between two Empires in a region that continues to be unstable. The book is a classic excellent history as well as being an eye opener to the region. Funnily enough it was recommended to me by my father in law, who in the 80′s was himself a minor player in the ongoing great game in Afghanistan.

I wanted to pull out one passage though that made me smile. If you have a copy, go to the last paragraph of the chapter “The freeing of the Slaves”. Bearing in mind the book was originally published in 1990:

As for the modest Abbott, who had paved the way for Shakespear’s feat, he was to receive scant recognition. His rewards were to come much later in his career, though. Not only was he knighted and made a general, but a garrison town – Abbottobad, today in Northern Pakistan – was named after him. But all that lay far in the future, however.

It’s funny how 6 months ago no one could have told you where Abbottobad is, but now it will always be remembered as the place where another chapter for the great game drew to a close with the execution of a notorious player.

Abbott will be remembered for a bit longer, if just for his name. And the Great Game will continue…

Guildford and Libya

I am in the UK for two days at the moment, in wonderful Guildford. Because curry isn’t really an option in Vienna (its not a noted Austrian speciality, and my good lady is not fond of curry) I get my UK work colleagues to recommend a place. They sent me to Maloncho which was pretty good.

Being a business traveller on my own I sat there quietly reading my book (Mark Twain’s “A Tramp Abroad“) and enjoying my lamb jalfrezi. Being a Monday night I couldn’t help overhearing what was begin discussed at the three tables around me. The topics of conversation was pretty similar, England’s thrashing by Ireland in the rugby at the weekend, the royal family (a particular obsession with 3 of the blue rinse brigade at one table), holiday travel and cinema.

Funnily enough each table covered at least 2 of these 4 topics in the hour and a half I was there. What surprised me was that no one talked about Libya. Considering the RAF started bombing the place over the weekend I was a bit surprised. Is it really that unimportant to the people of middle England, Surrey being about as English as you can get? Is bombing someones country of less interest than what you thought of “The Kings Speech”? Or is it an English reserve thing that it’s not polite to talk politics over dinner – one would be rather rude to raise the fact that one has sent Tornados, Typhoons and cruise missiles into action. Or is it that after nearly 10 years of war in the middle east, in Afghanistan and Iraq, the people of England are bored of war and don’t give a shit any more?

“Those who are indebted are not free”

Today I find myself in Warsaw. It’s an interesting place to be, probably the country in Europe that was least impacted by the recession. I would have to check the numbers again, but I think they mightn’t have had any quarters of negative growth.

I went for lunch with a Swede and the Irish situation came up, and I talked a bit about the infamous bank guarantee (and the information here that the government were advised against it).

He did share a quote with me from Göran Persson, who was the Swedish Finance Minister in their financial crisis in the 1990s.

“Those who are indebted are not free”

Persson’s point was that hobbled by such a huge national debt (generated by a 13% budget deficit) the country had few choices. It had to act to restore health to their finances, they had no choices, they were not free.

And that is where Ireland is going to be after this budget. You can argue that our sovereignty was lost when the EMF was called in, but as soon as we lost control of the finances (probably around 2005, it only really became apparent later when the bubble burst) we lost our freedom. In a few years time when the budget is back under control we will still have the pile of debt to address.

Back in Ireland today is budget day, and in a few months there will be an election. But then the thing everyone needs to focus on is getting the engine of the economy restarted. It is surprisingly healthy beneath all the doom and gloom. Output is up, unemployment has stabilised (helped by the release valve of emigration) and FDI continues to flow into the country.

Growth more than anything else is needed now, not hanging bankers from lampposts*. What I would like to see now is more constructive talk about the way forward, and less wallowing around in the mess of self pity and recrimination. Or I may not bother coming back when my contract is up in Austria.

* This isn’t to say that we should not also go after the guilty parties. I would like the new government to do what the Icelandic one has done. Set up a commission to investigate what happened, identify the policies that lead to disaster, name and shame those responsible, prosecute guilty parties, and implement a constitutional convention to change the system so this is far less likely to happen again in the future.

Fundamentalist and Militant Atheists…

From comment is free:

All atheists now tend to be called “militant”, yet we seek to silence none, to burn no books, to stop no masses or Friday prayers, impose no laws, asking only free choice over sex and death.

Religious reactionaries accuse the “new atheists” of being being fundamentalists. Presumably that is because Richard Dawkins, Christopher Hitchens and the like are encouraging atheists to fly planes into buildings, to blow themselves up in busy markets, to obstruct the civil authorities from investigating and prosecuting those who sexually abuse children, to deny lifesaving medical care and contraception to non-atheists based on their ill informed opinions, to oppress women by dictating their clothing standards, denying them equality under the law, preventing them from holding equal status in their organisations, hounding them (to death in some cases) with arbitrary “honour” standards, restricting their access to health care education and jobs, and so on, and so on.

Oh yeah. Those guys sure are fundamentalists all right.

Budget Analysis – Part 2

Following from my first post on this I have continued to crunch the numbers from the Government’s spending estimates for 2010. It would be nice if they had all this information in a database or at least a spreadsheet for us to look at. Instead it has to be manually transcribed from pdf files. But enough whining.

As I said the last time I wanted to look at the spending figures when everything has been broken into one of 4 categories:

  • Salaries, wages and pensions – the total cost of the people from civil servants to nurses, doctors, teachers, guards and soldiers.
  • Administration – what it costs to run the government departments – the bureaucracy if you will.
  • Government Services – the money spent on delivering government services, from running Fás, to heating schools, etc. Because much of this spending is given as a block to other bodies it will include admin and salaries I haven’t counted elsewhere. I didn’t have time to talk to several hundred departments/bodies to fix this.
  • Direct payments to citizens – all the cash or services handed directly to people, from medical card payments, to social welfare, to student grants.

The whole lot I have represented as a tree map to give you an idea of the scale of the spending. Click for a full size version:
Tree map of Irish Government spending

What it tells you is that we spend the cash as follows:

  • Admin: €1.49Bn [4%]
  • Salaries: €7.23Bn [18%]
  • Gov services: €14.31Bn [36%]
  • Direct payments: €17.23Bn [43%]

Nearly half the spending we have is giving cash back to people. It’s interesting what is in there when you look at the breakdown from the Department of Social Welfare. There is about €1Bn on single mothers which may explain why politicians tend to go after single mothers. Interestingly a similar amount is spent on nursing home care. But that isn’t as easy to go after because old people vote in droves.

The question I was looking to answer myself was could “efficiency gains” deliver a major part of the shortfall, or the €3Bn in upcoming cuts? Any efficiency would come from existing administration and delivery of services. Say 40% of the Gov Services total is also salaries (they won’t be handing out as much direct cash) and you have a total of €10.1Bn in spending to make more efficient. I don’t think there is anyone who thinks you can squeeze €3Bn out of that i.e. government workers could actually get their work done a 3.5 day week. If it is true then someone (i.e. the government) has been presiding over a criminal lack of productivity in the civil service!

It is pretty clear, from the size of the shortfall, where we spend the money (Social Welfare, Education, and Health), and how we spend the money (salaries and payments to the public) that any cuts are going to have to hit these services and public sector workers. Tough but true. Here’s hoping it’s sufficient, because otherwise the markets will raise the cost of our borrowing, which already represents 9% of what we spend.