Deal protecting insiders freezes the young out

Fri, Mar 1, 2013, 00:00

On Monday, the Government and trade unions agreed a new deal on pay and conditions for public sector workers. On Wednesday, jobs figures showed that, despite a rebound in the overall numbers at work in the economy in the second half of last year, young people continue to be squeezed out of the labour market.

The extent to which the young have borne the brunt of the jobs crisis is not widely appreciated. It should be, not least because of how the Government and public sector unions have done yet another deal which protects insiders at the expense of young outsiders.

Before looking at how these deals discriminate against the young, consider just how badly the under-35s have been affected by the crash. As the chart shows, the good news from this week’s fourth-quarter 2012 jobs numbers, which show the first durable increase in employment since the recession began, was exclusively of benefit to those aged 35 and over.

Return to peaks

The numbers at work in that age group have been rising gradually for two years.

This rebound, combined with the much more limited job losses in the 2008-10 period among older people, means employment in the age group has almost returned to bubble era peaks.

The lot of the young could hardly be more different. In the middle of 2007, the numbers of under 35s at work peaked at just under one million. As is the case in all economies, the young are the first to be let go when a recession bites. And so it was in Ireland in 2007. What followed was a haemorrhaging of youth employment. And even if there were signs of its staunching last year, as of the fourth quarter there were just 666,000 under-35s at work. That represents an astonishing decline of one-third since 2007. It is much worse among the under-25s, where employment is down by a hardly believable 57 per cent.

Now consider the Croke Park II deal.

By way of preface, reaching a deal that reduces the potential for conflict and disruption of public services provision is not to be sniffed at. Nor are the savings the Government claims will flow from the deal. But a premise of the agreement is the continuation of hugely restrictive recruitment across the public sector in the medium term. The logic of the hiring freeze is that, via natural wastage, the public sector headcount will fall. This will bring the public sector pay bill down.

There is no good reason to take this route, given that the numbers employed by the public sector are not large compared to peer countries. There are many reasons not to, including allowing a more normal infusion of fresh blood into the system.

It would be far more equitable to claw back more of the bubble era pay gains of existing employees than to freeze young people out of what is usually such a large source of employment to at a time of mass youth joblessness. This is all the more so because public sector workers, despite having suffered net income reductions, have, on average, retained a large part of the gains from bubble-era pay increases.

Average pay

The average gross pay packet in the public sector* was €63,305 last year, down by €1,300 from the peak registered in 2009. But it remains well up on the €58,170 paid in 2007 just as the bubble burst. In 2002, when the bubble began to inflate, the average public sector pay packet stood at €42,035. Even allowing for inflation (22 per cent) in the decade to 2012, average real pay is still one-third above 2002.

Looking at the total pay bill in comparative terms merely reinforces the point. In the decade up to the bubble, Eurostat figures show that the cost of Ireland’s public sector rose more rapidly than any other country in the EU over that period.

As a percentage of GNP, it was still the third highest among the 27 member countries in 2011 (the latest figures available). As a percentage of GDP, it was 11th highest and above both EU and euro zone averages.

Pragmatism is never a virtue to be undervalued. But there is a thin line between it and expediency. This week’s deal, like its predecessor, crosses that line. Insiders have been protected at the expense of younger outsiders. It adds insult to injury that those involved in its negotiation claim that it is “fair”. It is no such thing.

* Figures come from the Department of Public Expenditure and Reform and are derived by dividing the total year -end headcount by the annual gross pay bill

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