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.