Pay And Employment Trends In The Public..

Pay and Employment Trends in the Public and Private Sectors Recent posts on irisheconomy.ie (by Aedin Doris, Brendan Walsh, Karl Whelan and others) have raised questions about private sector pay trends in recent months. This matters for competitiveness and for the debate about public/private pay differentials. A related issue is the distribution of employment losses across the sectors. Pay Trends On pay, the fast answer is that we don’t know for sure what has been happening recently. The popular view is that a de facto pay round has been under way across the private sector since the middle of last year, and is continuing. Pay cuts in the range 5 to 10% for individual firms have been reported frequently, and there appear to be sectors where these have become common, such as legal offices, parts of the financial sector, retailing, transport, the PR/advertising companies and print/broadcast media amongst others. Bigger cuts have occurred earlier in construction-related firms but seem to be extending beyond that sector more recently. It is clear though that many private firms have not cut, and some have paid increases. Hard information in the form of official statistics is partial in coverage and not up to date. The CSO is in the process of replacing various sectoral employment and earnings surveys with a comprehensive new series called EHECS (Earnings, Hours and Employment Costs Survey) which will eventually cover the whole economy. It should be a big improvement, but right now the CSO is in mid-course correction (Sod’s Law). Softer information is also available in the form of ad hoc surveys conducted by various industry and business groups. In this note I thought it would be useful to gather together the most recent information from both sources. CSO Data The new CSO series, available only since Q1 07, is the quarterly release entitled Earnings and Labour Costs which thus far covers just industry and financial intermediation. There are three ‘legacy’ series still current which will be absorbed along the way into the new survey. Several other old CSO series have already been discontinued. The legacy series still being published are for (i) construction (ii) distribution and business services and (iii) the public sector. The most recent available numbers from all four, covering five sectors, are shown in the table.

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Table 1: Sectoral Weekly Earnings from CSO Data, not seasonally adjusted.

Sector

Totemp

% Chg qoq Q108 Q208 Q308 Q408

Latest as Peak % Peak % Chg yoy

Distribution, Business Serv 378000

+0.1

-1.0

-0.7

na

Mar 08

98.3

+1.1

Construction

218000

-1.5

-1.8

+0.9

+0.2

Dec 07

97.6

-2.4

Industry

240000

-0.4

-1.3

+0.3

na

Q4 07

98.6

+4.1

Financial Intermediation

81000

+14.4

-0.8 -16.2

na

Q1 08

83.0*

+3.0

Public Sector (excl. Health)

262000

+0.7

+0.4

-0.1

+2.3 Dec 08

100.0

+3.3

*There seem to be pronounced seasonals, with sharp peaks in Q1 and Q2 – there are only 7 obs, so no way to de-seasonalize.

Only construction and public sector have data up to end 2008. Public sector weekly earnings were up 3.3% yoy, but construction down 2.4%. Distribution/Business Services and Industry both weakened noticeably through the middle of last year, as did Financial Intermediation, but note the severe apparent seasonal, presumably driven by bonuses. All sectors other than public sector are off their peak, but with data only to Q3 2008 for three of the five sectors, the only tentative conclusion is that public sector has done best recently. But much of the reported pay-cut action seems to be recent, in Q4 2008 and Q1 2009, and the CSO data will not shed light on this issue for some time. Survey Data Information from the business surveys is fragmentary. IBEC’s Q1 Business Sentiment Survey, taken in February from a sample of 761 firms, includes the figures reproduced below. Pay reductions were expected by 20% of respondent firms and under consideration by a further 25%, total 45%. Pay increases were expected by 6% and under consideration by 9%, total 15%. On IBEC’s data, the ratio of (prospective) ‘reducers’ to ‘increasers’ is about 3 to 1. Smaller firms were somewhat more likely to be reducers, with Hotels/Restaurants and Retail the sectors most prone to cut pay. The IBEC survey also suggests that the pattern of lay-offs and short-time working is likely to continue, with high percentages either expecting or considering action in these areas.

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ISME, whose membership is concentrated in smaller enterprises, released results of a survey of 400 firms on March 30th. The survey, which asked about behaviour over the previous six months, was conducted the previous week, and is thus more recent than IBEC. The main results are as shown. ISME SURVEY SECTORAL Pay Freeze - Firms Pay Reduction - Firms

Constructio n 27% 71%

Pay Reduction amount

15%

69% 31%

Service 50% 38%

Manufacturin g 69% 24%

Distributio n 41% 49%

11%

14%

12%

12%

Retail

BUSINESS SIZE * Pay Freeze Pay Reduction Pay Reduction amount

Micro

Small

Medium

Total 50% 41% 13%

Total

50% 33%

48% 49%

60% 40%

50% 41%

16%

12%

9%

13%

micro = <10, small = 11 to 50, medium = 50.

Pay reductions were more widespread than in the IBEC sample, particularly in construction. For those firms (41%) cutting pay, the average reduction was 13%, suggesting that the across-the-board figure may have been 5 to 6%, allowing for the pay freezers.

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There are two further broad surveys. Dublin Chamber found in January that its members intended to seek pay cuts for 45% of higher executives, for 38% of middle managers and for 29% of junior staff. A more recent survey from the Central Bank was referred to in the Irish Times of April 4th. last as follows, and elicited some scepticism from bloggers on this site: ‘A Central Bank survey that received 300 responses from private sector firms, indicated pay cuts of 8 per cent on average in recent times.’ The Central Bank does not release its business surveys but has provided me with some details on the pay module included on this occasion. A total of 750 larger firms were contacted in March and 30% responded. Main findings were that 53% of firms had cut pay in the last three months, and 61% planned to do so in the ‘coming months’. The amounts for the cutters were distributed as follows:

Table 2: Central Bank Pay Survey, March 2009, Percentage Cut by Cutters. 0-5%

5-10%

10-20%

20%+

Total

Cut in last three months

35

40

16

9

100

Will cut ‘coming months’

39

50

8

3

100

The average cut, amongst those who have cut in the three months to March, was 8%. For the somewhat larger % planning to cut, the average is about 6.5%. Some firms obviously belong to both groups. The overall average for both past and future periods seems to me to be about 8% in total, allowing for the zero cutters. This is my interpretation of the figures rather than a stated CB conclusion. Conclusions on Pay The official CSO data are not yet available for most sectors of interest post Q3 2008. Such data as is available suggests a pay slowdown from the middle months of last year in the private sector. The business surveys are more recent and suggest a faster rate of decline. They are not definitive though, but it is clear that the public/private pay gap identified by the ESRI in January would have widened substantially in the absence of the pension levy. The ISME and Central Bank figs appear to be the most useful, and it helps that they cover small and large firms between them. Bearing in mind the different periods covered, it looks as if the private sector pay cut overall, allowing for the small number paying increases and the larger number of freezers, has already reached 6 or 7%. When definitive figures become available, it is possible that the pension levy adjustment will be seen to have been about the order of magnitude of the private sector pay drop, but it is too early to be sure. If this is the case, the private/public pay differential identified by ESRI in January has not been closed at all by the pension levy, which was in any event ameliorated a little in Tuesday’s budget.

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Finally, the private sector pay adjustment appears to be continuing into Q2 2009, so this process has further to play out. Employment Trends Public sector employment numbers rose 5,000 in the year to December 2008, according to the CSO release, and there appears to be no recent seasonal. Some extrapolations are required from the Sept – Nov average in the QNHS to get an estimate of total employment (all sectors sa) for December. My estimate is that private sector employment fell by about 118,000 over the twelve months to December. (The QNHS is also in transition: CSO plan to make it correspond to calendar quarters).

Table 3: Estimates of Employment by Sector, 000. Total

Private Sector*

Public Sector**

PubSect as %

December 2007

2143

1775

368

17.2

December 2008

2030

1657

373

18.4

* = author’s estimate, extrapolates QNHS ** = CSO Public sector employment was about 17.2% of the total in December 08, and had risen to 18.4% twelve months later. Policy Conclusions The figures are incomplete, and conclusions are tentative. (i) It appears that, for those in employment, the public service cut (via the pension levy) may roughly mirror what has happened on average in the private sector to date. In other words, whatever public/private disparity may have (ii) Employment losses have been severe in the private sector. There have been none in the aggregate in the public sector to date. Some temporary and contract staff may have been let go, but they have been replaced somewhere in the system and the end2008 public sector total shows a slight increase. (iii) The recruitment embargo and severance arrangements announced recently will begin to impact public service numbers from now on and so may the general squeeze on budgets. (iv) The pension levy leaves pensionable pay intact, so pension expectations for public servants on final salary schemes are unaffected. Some private sector workers on final salary schemes will have seen their pension expectations decline in line with pay rates. Others in defined contribution schemes are severely under water of course,

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and some in insolvent funded defined benefit schemes have lost both jobs and pensions. (v) In a standard SOE model, as Richard Tol has pointed out, taxes on earned income will retard the competitiveness adjustment to the degree that workers in the traded sector bargain for net pay. The composition of fiscal adjustment measures is thus part of the competitiveness package. Colm McCarthy April 9 2009.

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