Workers will have to be paid more to sustain public services

Since joining the European Union 50 years ago Irish industrial relations have changed dramatically.

The 1970s and early 1980s were marked by frequent strikes, some long and drawn out. Our industrial relations resembled those in the UK, unsurprisingly perhaps, with some disputes here involving UK-based unions or UK-based employers. Strikes were, and are, costly for both employers and workers. All sides suffered as a consequence.

Today pay agreements are generally reached in an orderly fashion around a negotiating table. Over time the outcome, in terms of agreed pay rates, has probably been very similar to what the war-like atmosphere of the 1970s would have produced.

Membership of the EU brought Irish employer and trade union representatives to regular meetings of the EU’s Economic and Social Committee in Brussels, as well as linking up with their sister organisations in the pan-European employer and trade union confederations.

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Learning how industrial relations were conducted on the continent, and the example of the bitter wars between the Thatcher government and the unions, encouraged both sides to look for a better way of doing business. It helped that Irish trade union and employer leaders often shared a drink in a Brussels bar or chatted together in the airport as they waited for a delayed Dublin flight.

At home, as members of the National Economic and Social Council, both sides began to work on shared ideas to address the economic difficulties of the 1980s. A new, less contentious era of industrial relations, termed social partnership, resulted towards the end of that decade.

As a result except for the difficult year of 2009 days lost through strikes in Ireland are a fraction of what they had been in the mid-1980s. Employers and workers have shared in the fruits of the growing economy.

The process of setting pay rates has evolved, reflecting changes in the economy itself and in the structure of the labour force. At the same time there has been a substantial fall in trade union membership rates, making it important that low paid workers are protected by minimum wage legislation.

Across much of the private sector pay rates are no longer set in national agreements, but national pay negotiations remain crucial in the public sector.

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Sustainable pay rates would over time compensate for rising prices and for the rise in output per worker. This should result in a relatively unchanging share of the fruits of firms’ growth for workers and for companies. However, while the prices that employers get for their output, and the prices that workers pay for the goods and services that they buy may tend to move in line, last year was an exception. Because of the energy price shock consumer goods prices rose very rapidly, while many employers were also squeezed by the rise in energy costs.

As a result while the economy continued to show good growth the purchasing power of wages actually fell for the first time since we began to emerge from the economic crash of 2008. Because of this most workers are worse off than they were last year. Many employers, especially those in energy-intensive sectors, have faced problems and may also be worse off.

As energy prices fall back the pressure is easing. This year it’s expected that wages will rise at a broadly similar rate to prices, possibly even a little faster.

While Ireland is very exposed to world economic trends if there are no further shocks from that quarter the traditional pattern of small real increases in wages should be restored over the next two or three years. The latest Central Bank forecast envisages average earnings rising by over 5 per cent a year to 2025.

Economic and Social Research Institute (ESRI) research showed that when the financial crisis hit public sector workers were on average paid around 20 per cent more than workers in the private sector once differences in qualifications were taken on board.

With the public finances in crisis public sector wages were cut. Since 2010 public sector wage rates have risen more slowly than in the private sector. As a result while some lower-qualified public sector workers are today possibly paid a bit more than in the private sector, quite a number of middle-ranking and more senior workers are now paid a bit less than in the private sector.

In an economy at full employment broad parity between the growth in public and private sector wages will be needed to sustain public services. Thus over the next three years it is expected that the increase in wage rates in the public sector will largely mirror those in the private sector.