Sparring partners put pay deal at risk

More than half a million trade unionists will vote in coming weeks on the terms of the latest national partnership agreement, …

More than half a million trade unionists will vote in coming weeks on the terms of the latest national partnership agreement, a deal that would give pay increases of at least 15.75 per cent to most workers over the next 33 months.

But with labour and skills shortages driving wages up, many are questioning the value of national bargaining, especially when inflation is already eating into the proposed wage increases.

Much of the success of the Irish economy in recent years has been attributed to a series of national agreements in which workers agreed to accept lower wage increases in return for significant tax cuts and increases in real take-home pay. These have helped to boost the competitiveness of Irish industry and to create some 700,000 jobs over the last decade.

But today's booming economy is a vastly different creature to the battered economy of 1987 when the first national agreement, the Programme for National Recovery, was launched.

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At that time, the public finances were in shambles. Soaring inflation and interest rates, negative investment, a penal personal tax code, massive unemployment and widespread emigration had combined to bring the State to a virtual standstill. Moreover, even though nominal wages had risen during the early-to-mid-1980s, galloping inflation and rocketing interest rates meant that standards of living had actually eroded.

In desperation, the Government, unions and employers met find a way forward. The result was a trade-off in which the Government agreed to cut out-of-control public spending and begin reforming the tax system, workers agreed to accept smaller wage increases in return for more take-home pay, and employers got an opportunity to invest in plant, product and marketing rather than in ever-soaring wage bills.

"The single most important thing that wage agreements have brought is industrial peace and coherence of planning," says Mr John FitzGerald, an economist with the Economic and Social Research Institute.

But that peace has become increasingly fragile. Nurses, gardai, construction workers and now bus drivers have demanded and, in some cases, won significant pay awards. Others feel they have been left behind by the economic boom and would be better off negotiating for themselves rather than accepting a new national deal.

"Nobody could have anticipated the extent to which the economy would take off. That's why we went into this round of negotiations to make up lost ground," says Mr Oliver Donohoe, research and information officer with the Irish Congress of Trade Unions. "Workers felt they hadn't got a fair share of the new prosperity. That's why this agreement is called the Programme for Prosperity and Fairness."

After the stormy and confrontational years of the 1970s and 1980s, employers are happy with the consensus approach to wage negotiations. "In general terms, the partnership process has brought stability, predictability and certainty to the way we do business in Ireland," says Mr Turlough O'Sullivan, director, industrial relations, with the Irish Business and Employers Conference (IBEC).

But, while the agreements have brought industrial peace and stability, not everyone is convinced that a model that equates pay moderation with tax cuts is the best way forward. The economy is already showing signs of overheating, with house prices rising and skills and labour shortages widening.

In such an environment, a policy of tax cuts and public spending will only serve to fuel inflation and push house prices up further, says Mr FitzGerald.

"It feels a bit like the 1970s when economists pointed out that what the Government was doing was crazy and would lead to disaster. No-one paid any heed and it led to the disaster of the 1980s," he says. "All we can do is warn. There's no guarantee it will not end in tears this time but it certainly raises the possibility that it will."

In any event, says Mr Jim O'Leary, chief economist with Davy Stockbrokers, national wage agreements have become increasingly irrelevant in the private sector where labour shortages have already pushed up wage rates.

"If the price of putting together a wage agreement for the private sector is that the Government ties its hands in relation to tax policy, it's not worth it. We'd be better off without an agreement and let the market look after itself," he says.

"The public sector is entirely different because the Government is the employer and has to get involved in wage negotiations with its employees. But the problem in the public sector is that the distribution of bargaining is not even.

"One the one hand, you have strong unions and on the other, you have the employer - the Government - looking at the political consequences of its actions. That causes an imbalance in the bargaining structure. At the very least, wage agreements should contain an agreement by the public sector not to strike."

With the inclusion of the voluntary and community sector in the negotiating process in recent years, national agreements have come to encompass far more than pay and tax reform. The Programme for Prosperity and Fairness, for instance, addresses issues ranging from illiteracy and lifelong learning to housing, heath and transport.

"I would see national agreements as an effective way of tackling some of the issues on the social inclusion agenda," says Father Sean Healy, director of the Justice Office of the Conference of Religious of Ireland.

The reason is simple. In Africa, there's a saying: `when elephants fight, it's the grass that gets trampled'. In a free-for-all, it's the people at the margins who suffer. Outside of a national programme, they will not fare as well."

Most observers expect union members to accept the latest agreement. So far, only the ATGWU has come out against it. But worker dissatisfaction can spread rapidly. According to ICTU's Mr Donohoe, two things could encourage people to vote no. "One is the booming economy and the feeling that they're not getting their fair share. The other is that a lot are cheesed off that they accepted wage moderation at a time when the people who were telling them to tighten their belts were creaming off millions."

Worries about rising inflation could also have an impact. Currently running at 4 per cent and expected to climb higher, inflation is already taking a hefty chunk out of the proposed increases.