Public sector wage cuts should be considered, OECD official says

IRELAND SHOULD consider cutting public sector wages to reflect falling private sector incomes even if it means breaking the Croke Park deal, one of the world’s leading labour market economists and the head of the employment division of the Organisation for Economic Co-operation and Development (OECD) said yesterday.

“I think our advice would be that at a time when private sector wages are adjusting rapidly it would be prudent to also put into the hopper public sector wages and working conditions,” Irishman John Martin said, speaking to journalists at a conference in Dublin.

“If the [Croke Park] agreement constrains the ability of the Government to make some changes in that regard, I think our view would be there should be a bit more flexibility,” he said.

Addressing the conference, he told the audience the OECD had been urging Irish governments to reform labour market policies here for a decade and that failures of State training agency Fás amount to a “national disaster”.

He welcomed the establishment of the National Employment and Entitlements Service (NEES), which will take over some of Fás’s functions. The new entity is modelled on agencies in other European countries which proactively help people who are unemployed to find work.

As well as matching jobseekers with available jobs and providing advice, Dr Martin said policies to “make work pay” had been effective internationally in reducing long-term unemployment.

There was scope for private companies to play a role in helping the unemployed return to work, Dr Martin said, adding the fostering of competition among private service providers and the NEES would be healthy.

He warned that contracts for such services would have to be very carefully designed and monitored to ensure private providers did not “park” those with limited employment prospects and “cherry-pick” those with better prospects. Australia is the country with most experience in this field, he said, having had four rounds of contracts for private employment services.

Dr Martin stressed the depth and breadth of the recent global employment shock. Across the 34-country OECD area, the rate of joblessness jumped from a 25-year low at the end of 2007 to a postwar high in October 2009.

He said Northern Ireland faced serious challenges with its high level of long-term unemployment, but noted its overall jobless rate was below rates in the Republic, the wider UK and the OECD.

Yesterday’s conference was organised by InterTradeIreland, a body established to foster cross-Border commerce under the terms of the Belfast Agreement.

Kevin O’Rourke, of All Souls College, Oxford, speaking at the same event, said the key issue for Ireland over the long term was that the world remained open to flows of trade and investment.

He told those present the openness of the global economy in recent decades had been “historically unique” and that there had been remarkably little protectionism in the wake of the global recession. He warned this openness should not be taken for granted. “What politicians do can be undone,” he said.

Prof O’Rourke also advocated a US-style fiscal union for the euro zone, involving a huge increase in the size of the EU budget. It is currently capped at 1 per cent of the bloc’s gross domestic product. The US federal budget is about 20 per cent of GDP.

A much larger EU budget would allow countries and regions suffering economic shocks to receive cash transfers from better performing regions via an expanded EU budget. He described as a “pseudo fiscal union” the idea of issuing euro bonds without a much bigger EU budget.