Ireland: The Reign of the Salaryman

There is something very traditional about the Irish economic crisis.  If you consider the staples of 1980s economics, they were the ideas that nominal wages adjust very slowly downwards and that labour markets segment strongly into insiders who are able to hold onto jobs in recessions and outsiders who bear the burden of adjustment either through job loss or wage cuts.  That’s a fairly accurate description of Ireland over the last year.

It’s informative to look at our latest Central Statistics Office report on earnings and employment in the private sector, especially the comparisons of the 2nd quarter 2008 (arguably the last pre-crisis quarter) with the same quarter in 2009.   On an annual basis, average hourly earnings across all industrial sectors were up 4 percent, though earnings in finance and insurance were down 12 percent.   On a quarterly basis, hourly earnings had declined — meaning that Ireland still spent the first 3 quarters of the financial crisis generating increases in hourly wages for people with jobs.  By the way, the Consumer Price Index for the year to October is down over 6 percent, with corresponding implications for the inflation-adjusted earnings.

And if you look at job grades (as classified in Ireland) who was able to maintain their paid hours? —

In the industrial sector, average paid hours per week for managers, professionals and associated professionals rose very slightly from 38.2 to 38.3 hours in the year to Q2 2009. They fell by 2.2% to 35.2 hours for clerical, sales and service employees and fell by 4.8%, from 39.2 to 37.3 hours for production, transport, craft and manual workers.

Underling this is that employment fell by 2 percent for managerial grades, 8 percent for clerical, and 12 percent for production/manual workers.  In other words, the closer your work was to white collar, the more likely it was that you kept both your job and your total earnings.   Just to confirm this, the percentage change in weekly earnings over the year for the three grades in industry (i.e. the non-financial private sector) are +0.6% (managers), -0.5% (clerical), and -1.5% (manual).  And while earnings in finance got hammered, job losses in finance were quite moderate, which is more or less what you’d expect when the big money left the sector but the government has stepped in to put a floor under how bad things can get.

And this is the private sector.  What about the public sector?  Well, the government has suspended a pay increase that it foolishly negotiated at the height of the financial market collapse this time last year, but it’s still sitting down with the public sector unions to agree a new plan in advance of the budget due in 3 weeks.  The outlines of the potential agreement that have been leaked to the media make for fascinating reading for anyone wondering about the objectives of Irish public sector unions.  Because the deal envisages job cuts, a recruitment freeze, and slashed overtime — in exchange for keeping the core pay scales as they are.  In other words, if most of your pay comes from working a fairly steady workweek and you’re well established in the system (or collecting a pension from it), it’s a good deal.  If your hours are variable and/or you’re one of the younger workers who could get squeezed out in a staff reduction or a recruitment freeze, it’s more worrying.  But that’s the deal your union bosses are pushing for.

There may be an implicit assumption of the insiders that the people who lose out in this deal can ultimately emigrate.  That was the Irish mode of adjustment of the past.  Whether that’s the basis of a political consensus over the next 12 months is another question entirely.  Our Minister of Finance expresses wonderment that there have been no riots yet as a result of the cutbacks already made.   Perhaps that’s because the distributional implications of the crisis have not been so obvious, hidden as they were in the preferred public sector vs private sector narrative that dominates the media.   But the evidence points to a strong insider-outsider distinction in understanding how the Irish crisis has unfolded and why, 15 months in, there’s still no consensus on how to get out of it.  It doesn’t seem to bother the people lending the government 20 billion euro a year.  One wonders why.

UPDATE 30 NOVEMBER: Irish trade union researcher Manus O’Riordan takes a related look at the statistics.

7 thoughts on “Ireland: The Reign of the Salaryman

  1. Pingback: Twitted by economyinfo

  2. Averages calculated over a shrinking population (of employed workers in this case) tell us little definitive about movements in the attribute of interest (wages) among the survivors.

    In order for the CSO’s numbers to definitively indicate pay cuts or rises on an individual, we would also need to see the average wage across the jobs lost. This is likely to skew lower, due to LIFO redundancy policies and clustering of job losses among the young and inexperienced.

    But other than that, your point about the insider/outsider divide is well made.

  3. Hi P O’Neill,

    Very similar situation here in Spain, with even less moves to do anything to correct things.

    Indeed I am now describing the situation here as one of “pre-crisis” rather than actual crisis, since two thirds of the population have in fact had a very good year of it, “salarymen”, pensioners, and government employeees.

    The crisis so far has hit young people under 25, low skilled workers (mainly immigrants) associated with construction, small businesses and some parts of the private sector, and that’s about it. Especially with prices falling and interest rates down.

    The crisis is now almost certain to be a fiscal crisis of the state, and the vice will start to close here after next summer as taxes start to go up, and interest rate tightening at the ECB starts to push up mortgage costs again.

    What we have, it seems, are two problems waiting to happen.

    “There may be an implicit assumption of the insiders that the people who lose out in this deal can ultimately emigrate.”

    Yep, this could become a real problem in Spain. Someone I met back from Florida this week told me young Spanish graduates are starting to show up there looking for work. If this really takes off, then the housing market will never stabilise, and, of course, the pension systems will become even more problematic.

  4. The union I am part of made a similar agreement.

    If this trend continues, there is going to be a major generational clash.

    The younger generation is being told that they can’t have the pensions and wages that their parents had, but they have to pay for wage and pensions that there parents got.

  5. What about the public sector? Well, the government has suspended a pay increase that it foolishly negotiated at the height of the financial market collapse this time last year

    It should be pointed out that although public sector gross wages haven’t decreased, net wages have been reduced as a result of the pension levy which was applied to all public servants (regardless of whether they were entitled to an actual pension or not.

  6. From the Dept of Finance Pension FAQ

    The criteria for being covered by the pension-related deduction are that one is a public servant (defined in section
    1 of the Act) and
    a) is a member of a public service pension scheme (defined
    in section 1 of the Act) or
    b) is entitled to a benefit under such a scheme or
    c) receives a payment in lieu of membership in such a scheme.
    In outline terms, the deduction applies to public servants who are employed by or hold an office or position in a public
    service body and are members of a public service pension
    scheme.

    And the insider-outsider perspective predicts that faced with the inevitability of a pay cut, the insiders would choose the pension levy over an actual cut. The levy keeps all the pay scales and relativities intact, it’s tax deductible and therefore hit to net pay far smaller than gross for the higher earners, and should the public finances ever improve enough that there’s some money to go around, it can be unwound without raising media hackles about a pay raise.

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