Public Sector Jobs - Redundancies are not the answer

I'm not anti the civil service, my brother is a civil servant. However, you must apply basic economics to the civil service as you do to business. If I own a business which employs people and then the income from my business falls I have only two options I can either reduce my workforce or reduce the salaries, failure to take either option will inevitably lead to the business going bust. The same applies to the civil service, the income which pays for the civil service, taxation, is drastically reduced so we must either reduce salaries or the workforce or face national bankruptcy. Obviously there are priority areas of the civil service which must be protected but it is inevitable that this must be done at the expense of other areas of the civil and public services. We cannot have our cake and eat it, the money is simply not there. In my opinion wage reduction is far more favourable than redundancy because it maintains the skills of those who have them rather than damning them to the dole queue and whilst it will reduce the amount of disposable income with the economy, as expat girl has been at pains to point out, it will do this to a lesser degree than unemployment whilst continuing to enable such persons to a service their personal debt, at least to a greater degree.

coc wrote:

Blair Horan was on Vincent Browne last night saying public sector pay cuts were a bad idea because they would lead to further private sector wage cuts which would lead to further demands for public sector cuts.. He viewed this as a deflationary spiral that should be avoided at all costs. I'm not an economist but, I'm not sure a little deflation isn't what we need now to get our wages and price levels down to a more competitive level. In past crises we'd have used a devaluation to do that, now deflation is our only option. Whatever we do, we need to get the public-private wage differential back in the negative. Point taken about specialisms which don't exist in the private sector, but I suspect they are rare enough.

I'm not sure I'd necessarily agree that privatising swathes of the public sector is a good idea, at least not now in the middle of the crisis. I presume the motivation for this is not just to switch the differential, but rather to create a circumstance where it is possible to slash and burn terms and conditions of the transferred workers. I'm not saying that doesn't need to happen, just that whatever cuts need to come will be even more savagely resisted if workers are also expected to be signed over to Michael O'Leary or his like.

On youngdan's thread I predicted a 10% pay cut in the public sector this year. I don't think I will be wrong.

Great post, coc.
You mention the central point that so many people miss.
We need to devalue. But we can't because we are in the euro.
So... what we can do is reduce wages in the public and private sector and at the same time reduce the cost of living.
On the cost of living: The cost of mortgages has come down, the cost of fuel has come down and now we need the cost of groceries to come down. I suspect the wage cuts will lead to that anyway. Cutting VAT wouldn't hurt either but I can see why the government want to keep any revenue stream they have.

Aldi's sales have gone up 25% in 2008. I am in favour of wage cuts over job cuts, to bring them down to Eu equivalents over time. Trades Unions historically have let jobs go to protect wages time and time again - people in unions need to start getting their word in now if they want jobs kept.

Lower grades should be protected though and middle and upper tiers take much bigger cuts.

There are always winners in a recession, ABF which owns Pennys also reported large profits recently.

It is a great time to be a judge anyway, it is unconstitutional to lower their salaries - Article 35.5.

eoinmn wrote:

coc wrote:

Blair Horan was on Vincent Browne last night saying public sector pay cuts were a bad idea because they would lead to further private sector wage cuts which would lead to further demands for public sector cuts.. He viewed this as a deflationary spiral that should be avoided at all costs. I'm not an economist but, I'm not sure a little deflation isn't what we need now to get our wages and price levels down to a more competitive level. In past crises we'd have used a devaluation to do that, now deflation is our only option. Whatever we do, we need to get the public-private wage differential back in the negative. Point taken about specialisms which don't exist in the private sector, but I suspect they are rare enough.

I'm not sure I'd necessarily agree that privatising swathes of the public sector is a good idea, at least not now in the middle of the crisis. I presume the motivation for this is not just to switch the differential, but rather to create a circumstance where it is possible to slash and burn terms and conditions of the transferred workers. I'm not saying that doesn't need to happen, just that whatever cuts need to come will be even more savagely resisted if workers are also expected to be signed over to Michael O'Leary or his like.

On youngdan's thread I predicted a 10% pay cut in the public sector this year. I don't think I will be wrong.

Great post, coc.
You mention the central point that so many people miss.
We need to devalue. But we can't because we are in the euro.
So... what we can do is reduce wages in the public and private sector and at the same time reduce the cost of living.
On the cost of living: The cost of mortgages has come down, the cost of fuel has come down and now we need the cost of groceries to come down. I suspect the wage cuts will lead to that anyway. Cutting VAT wouldn't hurt either but I can see why the government want to keep any revenue stream they have.

Good stuff indeed.

Some places are offering the equivalent of the dole if you feck off for two years - attractive if you don't have big financial commitments. The Civil Service should do this a bit more too now. If we had a better system of public servant communication between departments within Europe these people could go and live over there and they over here in exchanges with the potential for them coming back with a Euro language. The private sector here often looks for languaged people so everyone might be happy.

Interdepartmental co-ordination between public services in Europe is as distant a dream as cold fusion though.

Auditor #9 wrote:

Some places are offering the equivalent of the dole if you feck off for two years - attractive if you don't have big financial commitments. The Civil Service should do this a bit more too now.

They pretty much do, the civil service offers a great range of options for its members in regard to sabbaticals. Once you achieve a permanent position in the civil service you can proceed to take 2 career breaks of up to 5 years each with a guarantee of your job back at the end of them throughout your career. A good perk.

johnfás wrote:

Auditor #9 wrote:

Some places are offering the equivalent of the dole if you feck off for two years - attractive if you don't have big financial commitments. The Civil Service should do this a bit more too now.

They pretty much do, the civil service offers a great range of options for its members in regard to sabbaticals. Once you achieve a permanent position in the civil service you can proceed to take 2 career breaks of up to 5 years each with a guarantee of your job back at the end of them throughout your career. A good perk.

That's brilliant - I didn't know it was so good. Why am i not in the civil service? Maybe I kind of am in my own way. They don't get paid though do they ? Can they sign on the dole ?

Can these people not be suggested to take it now ?

Hey Joe, time for that sabbatical now that the recession has kicked in

They don't get paid but they are guaranteed their job back at the end of it. They will sometimes fund you to go and do further study during a sabbatical though. I have a friend who has taken time off from the civil service to train as a barrister and it is all being paid for by his Department. The only catch is you have to commit to stay in the civil service for an equal period of time after your career break, ie if you take a career break of 5 years you must commit to 5 years working in the civil service after the break... not a particularly difficult commitment to make at the moment .

Teachers also have significant opportunity to take career breaks. I remember my Maths teacher left my school when I was in second year but then returned when I was in sixth year with a PhD in maths.

Public sector workers are talking about others stepping up to the plate too and that the public sector should not be made scape goats or whipping boys. That is all fine with me. As far as I am concerned, reasonable people are not scape goating the public sector and are stepping up to the plate themselves and taking pay cuts.

The fact is that Ireland is facing serious deflationary pressures. Deflation and particularly wage deflation is in effect our only way out of this.

Public sector workers can moan about ignorant people's hypocrisy until the cows come home but the reality is that their wages have to drop like the rest of us.

The fact that Junior Ministers are offering up their own necks for the chop and that the Government is indicating that it cannot wait forever for agreement from unions signals to me that redundancies and pay cuts are coming soon.

The big question is not whether there will be pay cuts and redundancies. The big question facing the country is whether the public sector workers will take the pain like private sector workers have had too or whether they will engage in industrial action and bring the whole country down.

The public sector workers (the higher grades only) need to take the 10 paycut for the sake of the Country. I cant see it happening though.

What about the benchmarking exercise a few years ago, it seems they were completely and utterly wrong in their recommendations for large pay increases for the public sector. What happens to them now, where are the consequences?

Art wrote:

The public sector workers (the higher grades only) need to take the 10 paycut for the sake of the Country. I cant see it happening though.

What about the benchmarking exercise a few years ago, it seems they were completely and utterly wrong in their recommendations for large pay increases for the public sector. What happens to them now, where are the consequences?

This is it. But surely they negotiated everything in terms of inflation ???

No one saw massive deflation coming though did they ? Well, house prices are deflating and so is food - wheat went from $11 a bushel to $6 and is heading to $5 (listen to this vlog if you're interested ) and will stay that way for ten years it is predicted ... jesus.

I'd love to trust it but I wouldn't trust the cost of petrol and oil for anything. Surely the public pay is linked to inflation and deflation and so should deflate accordingly as the private sector employment deflates in extent ...

FT Lex Column - deflation coming to Ireland

I read the whole article but can't get it on the internet as I am not a premium content subscriber.

EDIT - I made a mess of that. The column forecasts deflation for those in Eurozone who are in trouble and who cannot print more money, i.e. Spain Greece and Ireland.

Zhou_Enlai wrote:

FT Lex Column - inflation coming to Ireland

I read the whole article but can't get it on the internet as I am not a premium content subscriber.

We borrowed at cheap Euro rates, we partied and now we have to pay.

I wouldn't mind reading that article because inflation is predicted alright. Trouble is, the inflation on the way is different from the inflation we used to have given our personal financial status and the complexity and shape of our economy and society compared to the last episode. If inflation is on the way then we should still peg payments to price now don't you think.

Even saving a year's worth of wages - 2 billion might be something useful to do.

A#9 - I misquoted - article says deflation is on the way

johnfás wrote:

I'm not anti the civil service, my brother is a civil servant. However, you must apply basic economics to the civil service as you do to business. If I own a business which employs people and then the income from my business falls I have only two options I can either reduce my workforce or reduce the salaries, failure to take either option will inevitably lead to the business going bust. The same applies to the civil service, the income which pays for the civil service, taxation, is drastically reduced so we must either reduce salaries or the workforce or face national bankruptcy. Obviously there are priority areas of the civil service which must be protected but it is inevitable that this must be done at the expense of other areas of the civil and public services. We cannot have our cake and eat it, the money is simply not there. In my opinion wage reduction is far more favourable than redundancy because it maintains the skills of those who have them rather than damning them to the dole queue and whilst it will reduce the amount of disposable income with the economy, as expat girl has been at pains to point out, it will do this to a lesser degree than unemployment whilst continuing to enable such persons to a service their personal debt, at least to a greater degree.

I disagree with you TBH. You cannot apply normal private sector economics to the public sector because the expenditure (civil service salaries) is too far removed from the income (taxation). In the private sector it is a direct exchange of the employee's salary for the income produced by their labour power - of course there are other financial considerations to be taken into account but the link between expenditure due to wages and income is a direct one. On the other hand, there is no direct link between money brought in through taxation and money paid out to civil servants. The income is not a direct result of the labour, whereas in the private sector it is. Furthermore, and possibly most importantly, private sector economics is driven by nothing other than personal profit, and that is what drives most payroll-related actions in the private sector. If we apply this to the civil service, well the government could effectively axe the entire civil service (with the exception of Revenue perhaps) and make massive savings while the people still pay taxes. Now of course this is unlikely to ever happen but it illustrates the fundamental problem with your assertion. The civil service is not there to make a profit for the government, while a factory or shop is there to make a profit for its owner. And if the purpose of the civil service is not primarily to make a profit, then it would be patent madness to apply profit-driven economic prinicples to its operation.

This is why I hate people who say that the government should be run like a business; it bloody well shouldn't and if it ever is I'm packing my bags and taking off.

I think you slightly overstate my point, evercloserunion. Obviously the civil service is not a business in that it provides the core services of the State which must be provided regardless of the prevailing economic circumstance. Hence in my post I made specific mention of the requirement that key services are identified and insulated. However, akin to a business the situation remains that if the cash is not flowing through the system the money is not there to pay the employees. If the cash is not there to pay the employees you either have to cut employee's pay or cut employee numbers, that is a reality. If that situation remains unaddressed you take on increasing levels of debt, which is OK in the shortterm to overcome a cashflow problem but if it is used to mask a core structural problem it will eventually lead the body, be that a business or a country to insolvency.

It is clear, and becoming increasingly so, that the level of public sector pay in this country is unsustainable given the level of cash which is flowing through the system. Thus we have the choices outlined in the paragraph above. We can cut wages, we can cut employee numbers or we can borrow to overcome the short term cash flow issues. However, in taking the latter step one would want to be damn sure that they are not masking structural deficiencies which if left unaddressed will inevitably lead to insolvency. Are we sure this is the case?

johnfás wrote:

I think you slightly overstate my point, evercloserunion. Obviously the civil service is not a business in that it provides the core services of the State which must be provided regardless of the prevailing economic circumstance. Hence in my post I made specific mention of the requirement that key services are identified and insulated. However, akin to a business the situation remains that if the cash is not flowing through the system the money is not there to pay the employees. If the cash is not there to pay the employees you either have to cut employee's pay or cut employee numbers, that is a reality. If that situation remains unaddressed you take on increasing levels of debt, which is OK in the shortterm to overcome a cashflow problem but if it is used to mask a core structural problem it will eventually lead the body, be that a business or a country to insolvency.

It is clear, and becoming increasingly so, that the level of public sector pay in this country is unsustainable given the level of cash which is flowing through the system. Thus we have the choices outlined in the paragraph above. We can cut wages, we can cut employee numbers or we can borrow to overcome the short term cash flow issues. However, in taking the latter step one would want to be damn sure that they are not masking structural deficiencies which if left unaddressed will inevitably lead to insolvency. Are we sure this is the case?

Just in part to play devil's advocate here, there is a third choice which is to raise charges and/or taxes. Taxation is at a very low level in Ireland and that contributed to the boom as there was so much cash in pockets. Our public services aren't more costly than in other countries, but our tax is lower. Of course the reality is that we will be forced to raise taxes and make cuts. Arguably, the right thing to do would be to cut out waste, and there is plenty of it to cut, to tax more appropriately and create an extra tax band for high earners and to take down pay in line with deflation at lower levels and make a good deep cut into the ridiculous higher grade payrates and pensions. We should then focus on no-cost value for money improvement in services.

Yes increase in taxation is an obvious way to increase cash flowing through the system and tax rates are too low in this jurisdiction. However you an only increase taxation so far before it has a negative effect on other areas of the economy which further compounds the issue. Obviously raising taxes to an acceptable level won't do this but equally raising taxes to an acceptable level is not going to close the gaping shortfall between the level of cash in the State coffers and its expenditure, thus cuts are going to be necessary somehow and somewhere.

Another point to factor in is that wages are already decreasing in the private sector, which makes up a significant part of the economy, so tax take is likely to fall further as it will when people shop in cheaper shops such as ALDI and LIDL as the VAT take will be lower.

The main thrust of your post(s) seems to be that we should cut back on funding for the civil service when money is short and not just borrow to make up for it. That is a fair point and I agree to an extent but that is certainly not the same as applying private sector economic principles to the public sector, and thus I think it is you who are overstating the point.

That is not just petty one-upmanship, because it is linked in with your second point about borrowing to cover up structural defects. A bloated payroll is not a structural defect. You could say the very high level of job security afforded to civil servants is a structural defect but that does not disallow the government from introducing pay cuts. In fact if there is a latent structural defect in the civil service, pay cuts are unlikely to cure it, though it would be less destructive than simply borrowing. Layoffs, similarly, are unlikely to solve any inherent problems unless preceded by a proper investigation which would be more difficult than one might imagine when you remember that we are not simply working on private sector economic principles here.

One thing I know is that certain sections of the civil service (SW at least) are understaffed, so layoffs without a thorough prior analysis of the situation could be disastrous.

Auditor #9 wrote:

Art wrote:

The public sector workers (the higher grades only) need to take the 10 paycut for the sake of the Country. I cant see it happening though.

What about the benchmarking exercise a few years ago, it seems they were completely and utterly wrong in their recommendations for large pay increases for the public sector. What happens to them now, where are the consequences?

This is it. But surely they negotiated everything in terms of inflation ???

No one saw massive deflation coming though did they ? Well, house prices are deflating and so is food - wheat went from $11 a bushel to $6 and is heading to $5 (listen to this vlog if you're interested ) and will stay that way for ten years it is predicted ... jesus.

I'd love to trust it but I wouldn't trust the cost of petrol and oil for anything. Surely the public pay is linked to inflation and deflation and so should deflate accordingly as the private sector employment deflates in extent ...

Bench marking was an exercise done to show that public sector workers were underpaid compared with the private sector. It was completely non-transparent and we never got to see the reasoning for the enormous wage increases that followed on. One Union rep referred to it as an ATM, if you remember.
Public sector wages had already benefitted from a big regrading exercise under Dempsey that created 7 chiefs for every indian, costing a fortune. Benchmarking on top of that in reality took wages to 20% ish above the EU norm, not counting the very beneficial guaranteed pension and other working conditions.

Bench marking also involved a supposed trade of of "flexibility" and change in exchange for the money. The money was paid out, and the flexibility was mainly something written up in a glossy report in Nuspeak.

This summarises the FT article Zhou posted about.

The blighted eurozone
Published: January 13 2009 09:13

Quote :

The Irish must be feeling green, and so too the Spanish, Greeks and Portuguese. Over the past week, all four countries have been warned that their debt ratings could be downgraded. Dublin, Madrid, Athens and Lisbon may bat this away with reassuring noises about how they will put their financial houses in order – even if they, meanwhile, suffer higher borrowing costs. What they cannot dismiss so easily, however, is the solution to their troubles: deflation.

The potential downgrades are only a manifestation of a deeper problem: a loss of competitiveness. That is largely why the Irish, Greek, Spanish and Portuguese trade deficits are so large and their economies slowing so fast. It has been a long decline. Euro membership lowered borrowing costs, but unleashed a credit boom and a rise in prices – most obviously in housing but also in wages.

The down grading of the debt ratings means that the vast amounts of money Cowen proposes to borrow will cost an arm and a leg. This is part of the cost of the Bank Guarantee, that we were told was not going to cost us anything.

This morning on the radio it was reported that the CEO of a small disability support quango (4 staff, 2 Dublin buildings) was on a salary of 150,000 a year which he is entitled to as "that is the level of salary in the civil service people that he talks to". A Board member said he had only just found out (getting worried after all the stories about FAS) what the CEO was getting paid. People with disabilities get 220 euro a week, he said.

The CEO, a Government appointee, doesn't want to take a cut to 90,000 - perhaps he has a hefty mortgage to pay. The organisation is broke and is cutting front line services.

The nurses union, the INO, says that it won't negotiate on wage cuts and that their legal advice is that Government does not have the right to cut the wages of an individual nurse.
Martin Mansergh on Morning Ireland said that's fine, we will cut back on hours/overtime - i.e. services instead.
Nurses recently negotiated a 37.5 hour working week with no loss of pay and are paid far more than the European average.

Historically, Trade Unions will not negotiate wage cuts instead of job losses.

The IMF in Latvia doesn't seem to have had any problem cutting public sector wages, and services and putting up taxes. This is the way we are heading under the present Government and "Partnership".

Like it is in Audi's whale story, I think we are in danger of a me fein free for all, in which everyone fights their own corner and everyone loses. The alternative would take a political party with the guts to do whatever it takes to try and bring everyone through this together, as best we can.

Maybe he had to sack that Polish 'cleaner' from his MacMansion but didn't want to for obvious reasons.

Even back in 2004 I was told by a local authority Town Manager - "we're going to cut back on the housing programme to pay my wage increase."

They were not even asking for these increases half the time.

cactus flower wrote:

Even back in 2004 I was told by a local authority Town Manager - "we're going to cut back on the housing programme to pay my wage increase."

They were not even asking for these increases half the time.

Anecdotal but Mother Of Divine Jesus !

Auditor #9 wrote:

cactus flower wrote:

Even back in 2004 I was told by a local authority Town Manager - "we're going to cut back on the housing programme to pay my wage increase."

They were not even asking for these increases half the time.

Anecdotal but Mother Of Divine Jesus !

The selling off of national resources with gigantic bribes to employees was another feature of the last ten years. This five-year-old article talks about a "Pandora's box" created by Brennan in the deal he made with Aer Rianta workers over privatisation.

http://www.tribune.ie/article/2004/jan/18/brennans-jobs-for-life-plan-a-pandoras-box/

Quote :

a government source said that no semi state has ever imposed compulsory redundancies, so Brennan's guarantee simply stated what was already there. However, a senior industrial observer warned that Brennan's offer was a "recipe for disaster" in that it gave semistate workers a veto over any change in these companies. "If workers have an absolute guarantee of a job for life in their back pocket as well as assurances on pay, what incentive have they got to accept any change which would worsen those conditions?" he said.

This will make the negotiation of much-needed change in the top-heavy semi states almost impossible to achieve, he said, or only achievable at a very high cost. The government will have to pay far more to get workers out if they have a job for life guarantee. This will add millions to the cost of rationalising semi-state companies in preparation for a sale because purchasers will not want to buy into a company with such ingrained labour costs.

Eircom, whose workers had a jobs for life guarantee, had to offer huge severance packages worth over ?100,000 to each worker, in order to cut its top-heavy workforce in preparation for privatisation. Aer Lingus had to pay its craft workers in TEAM an average of over ?46,000 each in 1998 to buy back 'letters of comfort' which kept their jobs open in the national airline.

But threatened action this Thursday by Aer Rianta workers in defiance of Siptu head office will put Brennan's conciliatory package at risk. Siptu's Jack O'Connor has now sought clarification from the minister that his job for life guarantee extends to "each employee's normal retirement age" and how such guarantees will be handled "in the event of any one of the airports being closed down, downsized or privatised in the future". I read yesterday that ESB workers got 40,000 cash each for accepting a change in employer and are now on average wages of 70,000 p.a.

High energy and telecoms costs are one of the most important factors driving employers out of Ireland.