Tag Archives: Taft on Thursday

From top: Cliff Taylor of The Irish Times; public sector pay is determined by the Public Service Stability Agreement agreed at  Lansdowne House; Michael Taft

Commentators are increasingly turning to the subject of public sector pay – in large part, to warn against pay increases or increased employment. In some cases history is being re-written.

Let’s go through some of the arguments – focusing on a recent article by Irish Times’ columnist and managing editor Cliff Taylor.

Not that he got everything wrong – he is a serious commentator. And what we need is a serious and evidence-based debate. Note: Quotes in bold below come from Cliff Taylor’s article.

‘The increase in numbers and, more lately, in pay will this year put the public pay bill back above its previous 2008 peak. It is due to hit €18.1 billion this year, more than 6 per cent above its previous high.’

True, but it doesn’t get us very far.

Public employee compensation (which includes pensions and social insurance) may have returned to 2008 levels, but the economy has moved on.

Public employee compensation fell from 13.5 percent of GNI* in 2008 to 11.2 percent in 2018. This may seem small but if the public sector pay bill were to return to 2008 levels, it would need to rise by €4.6 billion, or 21 percent. We are a long way from a decade ago.

‘Remember, the build up in public spending in the 2000-2008 period, based on a shaky tax base, left the exchequer finances exposed and filling the resulting gap contributed to a massive jump in the national debt during the crisis. The result: this year the Irish taxpayer will pay €5.3 billion in interest on the State’s debt.’

What exposed Exchequer finances?

Let’s not avoid the historical elephant in the room.

Exchequer finances were exposed by banks recklessly over-extending themselves, exploiting a speculative property sector.

When the crash came jobs melted away. Between 2007 (when construction employment started falling as property prices topped out) and 2010, 150,000 building employees lost their jobs – half of the fall in total employment.

And that doesn’t include all property-related employment (building materials manufacturing, transport, property-related finance, home furnishing retail, professional services such as architects, etc.).

This was further compounded by Fianna Fail’s fiscal policy that tied tax revenue to property-related tax receipts while cutting every possible tax (corporation, inheritance and capital gains, income, stamp duties, etc.) resulting in what Cliff Taylor rightly refers to as a ‘shaky tax base’. In a mere two-year period – 2007 – 2009 – revenue collapsed by €15 billion or 21 percent.

It is hard to attribute reckless bank balance-sheets, property speculation, the collapse in tax revenue and the destruction of property-related jobs to the growth in public spending, public services or the public sector payroll.

And interest rates? There is the little matter of the bank bail-outs. Between 2008 and 2011, the state was hit with a €42 billion bank debt bill, primarily due to Anglo Irish and Irish Nationwide (the bailouts of the systemic banks – Bank of Ireland and AIB – were categorised as ‘investments’ and were paid out of the National Pension Reserve Fund).

This, too, could hardly be laid at the door of the public sector pay bill.

Public, household and corporate finances became seriously unbalanced in the pre-crash period as people, companies and the government chased an over-heating economy.

In 1998, Irish consumer prices were 3 percent above the EU average; by 2008 they were 27 percent above the EU average. And this doesn’t factor in mortgages and house prices.

Any analysis of the pre-crash period that doesn’t start with the speculative-based fiscal policies and bank balance sheets is likely to miss the point by a wide margin.

‘Public sector numbers – and particularly pay – ballooned in the run-up to the crisis . . .’

This, again, is true and, again, misses a larger point. In the decade up to 2008 the public sector pay bill (both pay and employment) grew by an average 16.2 percent annually. All wages in the economy grew by 14.9 percent.

When we drill down further into average compensation per employee, we find that between 1998 and 2008 there was an annual average increase of 8.2 percent in the public sector compared to 7.3 percent in the total economy – or less than 1 percent annually. This could hardly be considered extravagant.

But how much of this was due to a compositional effect? We can drill down even further courtesy of the CSO.

Average annual growth narrowed even further. The story here is that (a) public sector wages (the CSO excludes health) increased only slight faster than industrial wages; and (b) both industrial and public sector wages rose faster than service sector wages.

If we had the health sector data it would have depressed the public sector average given that in 2008, health sector weekly income was 7.5 percent below average.

To restate: there was a lot of ballooning but the toxic air came from a speculative-driven economy and a fiscal policy tied to property interests. The comparisons between the public and private sector show similar patterns.

‘Average public sector salaries here are 40 per cent ahead of the private sector. However, public servants are generally older and better educated, factors that have been used to justify higher pay levels. A CSO study which tried to adjust for this element suggests that at lower to medium levels, public pay is ahead of the private sector, though the position may be reversed at higher levels.’

The CSO did more than that. It showed that public and private sector employees earned the same on a like-for-like basis (though prior to the crash there was a public sector premium).

In 2014, male public sector workers were paid 7 percent below their private sector counterparts. Women still held an advantage but that is due to a lower gender pay gap in the public sector (9.6 percent compared to 19.7 percent in the private sector).

‘International comparisons are more complex and vary from sector to sector. In general the percentage of public resources going to pay here is generally at or above the EU norm, though the numbers employed in the public sector here are lower than in many other EU countries.’

True, it is complex – made even more so by the lack of an internationally-agreed definition of ‘public sector’ employee. For instance, employee compensation in the health sector is not comparable across EU countries.

Many countries deliver their public health services through ‘non-governmental corporations’ such as social insurance-based occupational funds, or purchase them in the market. These are public in every sense of the word, but health employees are not categorised as ‘public’.

For instance, employee compensation makes up only four to six percent of the total health budget in countries such Germany, Belgium and the Netherlands, compared to tax-financed systems where employee compensation makes up over 40 percent of the health budget (UK, Sweden, Ireland). Other countries have hybrid systems. Comparing pay in the public health sector is not possible.

So let’s compare public sector pay excluding the health sector.

This still comprises 80 percent of public sector pay.

Ireland, based on GNI*, comes in at the bottom of the Eurozone, bar Germany. If we were to reach the Eurozone average we could employ over 40,000 additional public sector workers.

* * * *

None of this is to say that everything is fine in the public or private sector. And this is certainly not a full picture. There are important issues of fiscal management and productivity that we need to get right.

And who is best placed to lead sound management and improved efficiency?

Ellen Rosen was writing about the public sector but her focus on worker empowerment is just as applicable to the private sector.

‘It is the [public sector] workers who discover that things are not working as it was assumed they would, who first encounter the unexpected difficulties, and who are the first to hear from the clients about needs that the program is not meeting. In short, workers know the operations most intimately and are in the most immediate contact with the clientele.
Workers are not only the natural source of feedback on how things are going, but also the natural source of ideas and insights into the specifics of operations.’

We can have a shouting match over public sector pay and efficiencies (Cliff Taylor never descends to that) with duelling stats and anecdotal evidence that can border on the hysterical – remember the Ministerial claim of a ‘civil war’ between public and private sector workers?

Or we can have a more productive and effective exploration of the issues involved.

It shouldn’t be too difficult a choice.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Thursday.

From top: Finland’s two-year basic income trial failed to encourage its participants to work more but it did improve their wellbeing; Michael Taft

In 2017 the Finnish Government launched a two-year experiment in Universal Basic Income (UBI).

Two thousand unemployed people were selected at random and paid an unconditional €560 per month (though, in the complex Finish social protection system, they still retained social assistance, housing and sickness allowance).

Even if they found work they continued to receive the €560 per month – as per the nature of UBI. The experiment is over and an initial report published. The two main findings are:

The experimental UBI didn’t increase employment among the recipients;

however There was a marked increase in well-being

It is important to note this initial assessment only covers the first year of the experiment. So we are looking at half-time results. Things may have changed for recipients by the end of the second year.

The experiment has been criticised on the grounds that (a) the sample size was too small (it was originally intended to be 10,000); (b) only unemployed people were selected, whereas UBI would have benefits to those both in and out of work – for instance, the low-paid; (c) its design focussed almost exclusively on the impact on the labour market; i.e. whether it would increase employment among recipients.

Regarding the last criticism, if UBI were to create jobs it would be due to a substantial redistribution to low and average income earners which would boost demand in the economy (though it could also increase inflationary pressures).

The limited experiment was not designed to test demand-boost so the employment result is not all that surprising.

Yes, a number of people felt better but is that worth the price? There are identifiable fiscal benefits that come with this enhanced well-being.

For instance, in the experiment the UBI recipients claimed an average of €121 in sickness allowances compared with €216 for a control group of non-recipients. That would yield significant savings if applied across the economy.

So where does that leave the UBI debate in Ireland? It seems stuck between proponents arguing for a fundamental systemic change, and those who have economic and social objections to UBI in principle as well as those who pragmatically oppose it on grounds of cost and unintended consequences. In short, the debate is spinning its wheels.

This is unfortunate, because one does not have to be a proponent of a full-blown UBI to see the potential common sense in many aspects of it.

Here is an example of a policy based on certain UBI principles but which could win support of UBI sceptics.

The Government could transform personal tax credits into a basic or minimum guaranteed income for all. Currently, everyone at work – except for those whose income is below the entry threshold – receives a cash payment of €63.50 per week through the tax system: the combined personal and PAYE tax credit.

If that were paid to everyone the benefit would be almost exclusively focused on low earners – in particular, those in low-paid precarious work.

No one in the tax net would benefit – after all, the ‘cash’ payment is only equal to what they get today in personal credits

Social protection recipients wouldn’t receive any benefit either, as the cash payment would be absorbed into the current payment (which is not to say that social protection benefits shouldn’t be increased but that is a separate issue)

The only beneficiaries would be the low-paid who, if below the tax threshold, do not currently get the full benefit of the personal tax credits. It would also guarantee a minimum payment for those on precarious hours regardless of how many hours they work.

The cost would be substantially less than the Taoiseach’s promised tax cuts of €3 billion. A back-of-the-envelope calculation suggests that, in 2016, paying everyone in work €63.50 per week would cost €9.6 billion. There would be a saving of €8.0 billion in abolishing personal tax credits.

This would result in a net cost of €1.6 billion. This should be considered an outer bound figure (other calculations put the net cost lower).

But these are headline estimates. There could be further costs and savings through the interaction of social protection, subsidies and work income depending on the range of personal circumstances.

For instance, this new payment would replace most of the means-tested student grants and be available to all households (currently many average-income households are excluded). This could happen with other programmes.

€63.50 per week (€3,300 per year) sounds like a small amount and it is – but it would be an improvement for those on low pay and in precarious work.

For instance, someone who can only find work for 26 weeks of the year on the minimum wage would gain €1,260. If this is shown to have social and economic benefits this minimum income floor could be raised over subsequent years.

This is would not be a substitute for other measures to combat precariousness. That will require a number of strategies – collective bargaining rights, statutory reforms and fiscal instruments such as outlined here.

Ultimately, the advantage of this approach is that one does not have to be a supporter of UBI to see the advantage of transforming personal tax credits into a minimum payment to all.

And if the benefits revealed so far by the Finnish experiment are replicated here, we would be promoting social well-being as well.

Not a bad day’s work for a little common sense.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Thursday.

From top: Members of the Dundrum Housing Action group at the official opening of 44 new social homes at Rosemount Court, Dundrum, Dublin 14 last year; Michael Taft

With all the commentary understandably focused on a ‘hard border’ it is easy to forget that even in a soft Brexit, with a satisfactory outcome to the border, the hit to the economy could be substantial.

We need a progressive response to the issues – one that goes beyond merely throwing money at exposed companies in the hope that some of it will be used ‘smartly’.

The following outlines some proposals – but the most provocative one I’ve saved for last.

For a public housing drive can be of great assistance to softening the edges of a bad Brexit (and all Brexit outcomes, unless Britain remains in the custom union, are not good).

1. Sectoral Partnership Schemes

A number of manufacturing and service sectors have been identified as being relatively or highly dependent on the British market and, so exposed to a bad Brexit: food & beverages, traditional and materials manufacturing, printing, some pharmaceuticals.

Further, financial, communication and IT sectors could also be affected.

A Sectoral Partnership Scheme would direct state aid to sectors and companies to help them adapt. This could be through goods and market diversification, niche marketing in the UK, production efficiencies, finance accessing, R&D and innovation initiatives, etc.

Sectoral committees (based on specific sectors such as food, printing, etc.) would be established with employer, employee and government representatives who would oversee these supports. All stakeholders would be involved in the design, implementation and monitoring of public supports.

Employee participation in particular, through representative agencies such as trade unions, makes common sense since employees are the largest group of stakeholders affected. With input from employees, firm and sectoral strategies are likely to be improved.

2. Short-Time Working Scheme

The Government should introduce a short-time working scheme (similar to ICTU’s proposals re: the construction sector in 2009). Germany used this approach during the early part of the last recession.

This would help ensure that workers remain in work. Where there is a fall in firm output owing to a Brexit-caused market hit, instead of laying people off, working hours would be reduced with the state subsidising the employer/employee for the wage loss.

This would operate for a temporary period but it would give time for firms to adjust (e.g. for instance, under the proposed SPS above) or for job creation agencies to develop alternative employment in the area affected.

3. Strengthen Automatic Stabilisers – Introduce Pay-Related Unemployment Benefit

Unemployment Benefit acts as an automatic stabiliser when unemployment rises. Income from social benefit replaces income from work so that consumer demand can be maintained and the household’s income loss is ameliorated.

However, Ireland’s automatic stabilisers – unemployment benefit – are weak. In other EU countries, unemployment benefit is pay-related – up to 80 percent of previous wage for a period of time; in Ireland, it is flat-rate and represents less than 25 percent of an average full-time employee’s previous wage.

Unemployment Benefit should be reformed to introduce a pay-related element (e.g. 75 percent of previous wage for a minimum of nine months). In the event of job losses arising this measure would help maintain consumer demand and, so, ensure that further job losses don’t occur because of educed consumer spending. It would also cushion the job-loss impact on household’s finances.

4. Public Housing

Public housing can be an important instrument in both resolving the housing crisis and reducing the hit from a bad Brexit; namely, a dedicated and substantial drive to construct public housing that can meet the housing needs of people both in and out of work.

There are two issues here. First, if we enter a downturn (not necessarily a recession) with a housing crisis, it is likely to be exacerbated and, so, cost even more to resolve on the other side of the downturn. In this instance, a public housing drive can be seen as cost-reducing measure over the medium-term.

More importantly, a public housing drive can replace the reduced growth arising out of a bad Brexit.

Let us assume that national income gets hit (GDP or GNI or GNI*). Consumer spending, domestic investment and employment are reduced with negative consequences for public finances: falling tax revenue, increased public spending through rising unemployment payments, etc.

A recent study from the Irish Fiscal Advisory Council provides evidence that a public housing construction drive could drive up GDP in the short-term.

What this graph – taken from the Fiscal Council data – shows is that for every increase in investment equal to 1 percent of the domestic economy, the benefits will be nearly doubled in the short to medium-term in terms of domestic economy growth.

Model 3 is lower because this measures the entire economy – both domestic and foreign-owned. The foreign-owned sector is unlikely to benefit from any such increases as they rely on foreign demand.

Over the long-term, the benefits disappear as is usual with once-off increases. But the issue here is to ameliorate any damage in the short-term from a bad Brexit. We can expect to see GDP/GNI* rise along with tax revenue; expenditure will fall given that more jobs are being created by the investment.

There are further, secondary, gains from a public housing drive that these multipliers wouldn’t pick up. For instance, more public housing would reduce expenditure on Housing Assistance Payments (HAP) and other subsidies to the private sector.

Secondly, if cost-rental housing is rolled-out, then the savings on rents for tenants (which could come to hundreds of Euros a month) would be redirected back into the productive economy, increasing spending on goods and services.

What all this points to is the need for substantial and cooperative intervention to counter an external threat; substantial in terms of state resources, and cooperative in terms of employee involvement.

That this can help resolve a pressing social need – housing for those in need – shows how a progressive response can lead the national response to a crisis manufactured in Britain.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Thursday.


From top: Christmas shoppers on Grafton Street; Michael Taft

Colin Murphy has a provocative column in The Sunday Business Post (January 27 – behind paywall) about measuring our economy and national well-being.

The traditional measure is GDP. The traditional yardstick is the higher the GDP per capita, the more prosperous the society. Maybe.

Even the originator of GDP, Simon Kuznets, had his doubts about that, as Colin points out:

‘Kuznet argued that spending that did not further the welfare of society – such as on armaments – should not be included but he was overruled. And he consistently warned against the over-interpretation of the data. National income and GDP were not measures of economic welfare, he stressed: to understand welfare you would need to know not merely what income amounted to but how it was distributed. ‘

And now the illegal narcotics trade and prostitution are included in GDP. How does that fit in with ‘economic welfare’?

A number of economists, sociologists, statisticians and activists have tried to come up with an alternative set of data to reveal a more effective picture of a nation’s well-being but the range is so extensive, the interactions complex and the permutations voluminous.

Surprisingly, there is no consensus on how to do this.

The OECD has devised an interesting Better Life Index comprising housing, income, employment, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.

But there are other indexes that have over a hundred measurements and it is difficult to come up with a single number that can compete with GDP.

For instance, someone in country A may have a higher income than someone in country B. But people in country B pay less on rent and receive free healthcare – benefiting from lower costs and security. Though income-poorer they may be better off than people in country A.

Another problem is that wellbeing can be a subjective matter. It’s not just about how objectively we compare, it’s how we feel about our situation.

In this spirit of exploring the different indicators I’d like to draw attention to three particular measurements that don’t get much airing.

These are not conclusive tests or even the best indicators. But they do tell us something about people’s wellbeing.

Inability to Make Ends Meet

This is a subjective measurement contained in the EU Survey of Living Conditions that asks people how well they can make ends meet – that is, meet every day expenses. There are five responses: ‘with great difficulty’, ‘difficulty’, ‘some difficulty’, ‘fairly easily’ and ‘easily’.

Combining ‘great difficulty’, ‘difficulty’, and ‘some difficulty’ we find Ireland at the top of the EU high-income league. 61 percent expressed some type of difficulty in making ends meet – compared to a 32 percent average among other EU high-income countries.

Irish households are nearly twice as likely to experience difficulty making ends meet and nearly four times the German rate. [It is worth noting the high French levels – could this be a contributing factor to the emergence of the gilet jaune protests?]

There is a difference, though, between ‘some’ difficulty and ‘great’ difficulty. How does Ireland fare in the specific difficulty categories?

Ireland leads the most difficult categories – more than twice the ‘great difficulty’ average. With ‘some difficulty’ Ireland ranks second behind France.

The only bright spot in these depressing numbers is that difficulty experiences are falling from even higher rates that were generated during the recession / austerity period.

Households experiencing ‘great ‘difficulty have halved since the peak in 2012/13 and are back to 2007 levels. Those experiencing difficulty has also fallen since the 2013 high and is nearly back to pre-crash levels. However, those experiencing ‘some’ difficulty are still close to the recession high and still significantly above pre-crash levels.

It should also be noted that had we returned to pre-crash levels (54.3) we would still be well above the EU high-income country average.

Unable to Meet Unexpected Expenses

The EU Survey on Living Conditions also asks households their ability to meet unexpected expenses. This differs from making ends meet as it refers to meeting a substantial cost such as replacing a broken cooker, boiler, fridge or car; or some other expense of equal value that is unexpected (a hole in the roof is another example). Again, Ireland fares poorly.

We are the league leaders – four out of ten households are unable to meet unexpected expenses. This is considerably above the average of other EU high-income countries and more than twice the rate of Sweden that has the lowest level.

At least we are improving. A decade ago – in 2007 – the rate was 39.1 percent and rose to a recession / austerity high of 56.4 percent in 2012. However, even if we were to return to pre-crash levels we would still well above the average.

Living Standards: Actual Individual Consumption

Actual Individual Consumption (AIC) is used by the EU as a proxy for living standards. It combines consumer spending per capita and Government spending on goods and services for households (this includes services that the Government offers free or at below market-rates). It is adjusted for inflation and the purchasing power standard (PPS).

Ireland is at the bottom – far behind the average but also far behind the next lowest country, France. Ireland would have to increase AIC (real consumer spending and Government services) by 23 percent to reach the average.

In fact, so poor do we rate in this measurement that we are behind Italy and not that much higher than Spain or Lithuania.

And we are still quite a bit away from the pre-crash level. In 2007, Irish AIC was 21,600 PPS. This fell to a recession low of 18,800 PPS in 2010. In 2017 this this has risen to 20,500 PPS but we still have a ways to get back to where we started a decade ago.

The one drawback with this measurement is that we shouldn’t assume that high consumer or social spending equates to well-being. Consumer spending may be poorly distributed (i.e. more spending by a small group at the top) and social spending may be inefficient.

There is some co-relation with this graph and inability to make ends meet: France and Ireland are low in the AIC table and high in the making ends meet table. Germany is reverse. But for other countries there are slightly contrasting stories.

* * *

What do we do about this? We can make reasonable assumptions about why people are finding it hard to make ends meet: lack of income and low-pay, high rents, medical bills, cost of raising children, mortgage arrears, etc.

However, we can make a more forensic analysis. Quite simply, we should ask people why they are finding it hard to make ends meet and what they need to make their situation better.

The CSO could be provided the resources to conduct this in-depth survey (and the resources would be miniscule). The results should give rise to a national debate, for clearly a significant proportion of households suffer inability to make ends meet and to meet unexpected expenses.

That doesn’t mean we have to wait for such results. We should start addressing the housing crisis in and of its own right. We should start giving employees greater collective rights in the workplace to increase enterprise efficiency and combat low-pay. We should go much, much further to combat precarious work.

However, rather than just assuming what people need, we ask the people themselves. This is the first step in getting people socially and economically engaged. It’s when people start determining the policy responses that substantial progress can be made.

In short: well-being is a political issue.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Thursday.