Wage strife requires partnership rethink

The social partnership model will need to be altered to cope with increasing industrial action, according to three authors writing in the latest ESRI quarterly commentary.

Mr Donal de Buitleir and Mr Don Thornhill suggest a new form of gain-sharing for the public sector which would see wages rising broadly in line with GNP. At the same time, Mr John McHale of Harvard has suggested a deferred compensation package in the form of pensions.

Mr de Buitleir agrees a free-for-all is one alternative to the current structure. But he warns this could result in more strikes, and other forms of industrial action as well as possibly uncompetitive pay settlements.

The authors propose a two-part wage settlement. The first would be a basic pay increase, possibly related to inflation across the euro zone. The other part would be an annual lump sum related to the growth in the economy. This would be a percentage rise linked to the growth in GNP per person at work.

Under such a system, if the economy does well, the fruits of growth are shared more widely than before. If there is a shock, the adjustment is made more efficiently in the sense that the adjustment is transmitted automatically and with the minimum friction.

But they also warned this would not be an automatic entitlement to be paid regardless of productivity and payments could be linked to agreement on appropriate productivity measures. The payments could also be accorded some special tax relief, similar to that given to profit-sharing for private sector workers.

It should also be paid to long term social welfare beneficiaries and to pensioners on the basis they should share in the benefits of economic growth.

If GNP grew in line with ESRI forecast from 2000 to 2005 a male on the average industrial wage would have received a payment of £670 in 2000, by 2004 that would have risen to £3,506. By assuming an annual rate of return of 10 per cent the accumulated funds could have grown to £11,570 by 2004.

At the same time Mr McHale has proposed universal retirement accounts to be set up for each working-age adult in the State. He says the Government savings scheme has several flaws. It backdates the incentives so the return on the money you put in year five is far more valuable than the return in the first year. Ideally, it should be the other way around, says Mr McHale. He also argues that its likely impact on the savings ratio is ambiguous. If a person already saves large amounts then the incentive will be to save less for the same return and spending the difference.

It is only those who are less-than-regular savers who are likely to be significantly affected.