A New Deal On Pay

In its final quarterly bulletin as an independent institution before the Republic adopts the single currency on Friday next the…

In its final quarterly bulletin as an independent institution before the Republic adopts the single currency on Friday next the Central Bank signed off with what might be called a cautionary tale on pay. The bank stepped up the pressure for wage restraint, warning that excessive pay rises represented the most serious threat to our current economic success. It also signalled that escalating pay costs could place our economy out of kilter from the rest of Europe; this could, it warned, lead to an increased risk of job losses and declining foreign investment.

As negotiations get under way on a successor to Partnership 2000, this warning could scarcely have been more timely. Figures for the first six months of this year underline the scale of the problem: pay in the manufacturing sector increased by 6 per cent and wages in the construction industry accelerated by around 13 per cent. In some sectors of the economy, notably the computer sector, it is thought that wage increases are still more substantial. In stark contrast, pay rises in the euro area - and among our trading competitors - averaged about 2.5 to 3 per cent over the same period.

Negotiations on a new pay deal face a number of formidable hurdles. While all sides acknowledge the importance of social partnership in helping to build our current economic well-being there is also a strong sense that the current model is too unwieldy and inflexible; that it fails to meet the demands of a modern booming economy. There is also a residual bitterness in some sections of the private sector that national agreements have failed to deliver the kind of "special" deals available to their counterparts in the public sector.

The Taoiseach, Mr Ahern, has already shown himself receptive to some of these criticisms: the Government has signalled that it is ready to introduce a performance-related pay structure in the public service within the next year. The National Economic and Social Council (NESC) has also been asked to consider a long-term vision of the State around which the Government and the social partners could build a framework for the next decade and more.

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It is important that all sides bring new and imaginative thinking to the negotiating table when discussions begin. A traditional approach focusing exclusively on pay increases and/or tax cuts could be counter-productive. Hefty wage increases could trigger inflationary pressures in the economy, while further substantial tax cuts are a diminishing return if they damage public services like health and education. Performance-related pay is one alternative worth pursuing. But there are other options that might be usefully explored. The whole concept of "gain-sharing" like profit-sharing schemes or shares for employees is still relatively underdeveloped. Greater State input in the provision of badly needed child care and recreational and leisure facilities might also be considered as part of an overall package.

More generally, after 11 years of the current model, the Government might be wise to abandon the notion that the only alternative to a national pay deal is a free-for-all scramble. It may be that some kind of new model can be devised in which individual sectors are free to make their own deal within an overall framework. Certainly, every option should be explored as the government and the social partners move to build on the remarkable progress achieved in the last decade.