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.

% Chg qoq Latest as

Sector Totemp Q108 Q208 Q308 Q408 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

Constructio Manufacturin Distributio

SECTORAL n Retail Service g n Total
Pay Freeze - Firms 27% 69% 50% 69% 41% 50%
Pay Reduction - Firms 71% 31% 38% 24% 49% 41%

Pay Reduction amount 15% 11% 14% 12% 12% 13%

BUSINESS SIZE * Micro Small Medium Total

Pay Freeze 50% 48% 60% 50%
Pay Reduction 33% 49% 40% 41%

Pay Reduction amount 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 end-
2008 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.