Lost in the forest

Michael Taft: Some people can’t see the forest for the trees. And some people can’t see either the forest or the trees. They just can’t see. Take the reaction to the latest public sector employment earnings. The headline figures are that public sector pay has risen by 3.2 percent in the year up to June. This has resulted in even more garment-rending in some quarters – we’re in the middle of a recession, and these cocooned public sector workers are still raking it in. That’s one way of looking at it – if you can’t either see the trees or the forest. Now let’s open our eyes.

Since the payment of the last tranche of the previous agreement in September of last year (which was agreed over three years ago, what has happened with public sector pay?

First Quarter of this Year: + 0.4%
First Quarter (including the pension levy): - 7.1%
Second Quarter 2009: + 0.2%

Even without the pension levy, public sector wage growth has fallen off considerably, to a second quarter growth of 0.2 percent. This didn’t get much attention in the media. Rather, attention was focused on the annual increase which included the last tranche of the social partnership deal that was agreed over three years ago, and which was paid out last September. Throw in the pension levy, and the drop in wages was severe.

Fergal O’Brien, senior economist over at IBEC, believes he can clearly see the forest.:

‘Obviously there is clear divergence still between what is happening in the public sector in terms of controlling the pay bill versus what’s happening in the private sector.’

He bases this ‘clear distinction’ on the supposition that, while public sector pay has increased by two percent, private sector pay has fallen by 11 percent in the last year. Where does he get this figure of 11 percent? I suspect he has pulled this out of some IBEC survey of its members. Is this real? Not if official data is anything to go by.

CSO data on wages lag and, therefore, the last quarter we have data across the range of sectors reporting is the 4th quarter of last year. However, as the recession gained traction, we find that pay in almost all sectors increased well ahead of that in the public sector and utilities (which is mostly made up of public enterprises). This is a big tree to miss.

In the first quarter of this year, we can compare the broad industrial / financial sectors with the public sector. While overall pay in the manufacturing sector increased by 2.7 percent, and increased by 0.6 percent in the financial sector, public sector pay increased by 0.4 percent.

Many commentators have queried why manufacturing earnings rose during this period? We can get lost in the forest if we don’t get a grip on these numbers. As I’ve pointed out before – this earnings increase went exclusively to the managerial sector, with office and factory floor workers seeing their quarterly earnings fall. A similar trend can be seen in the financial sector.

None of this should be taken as an argument for not cutting public sector wages (or for freezing them, or for increasing them). It is, in the first instance, an argument for taking an evidence-based approach to this debate. Unsubstantiated assertions and contentions not grounded in fact have degraded the economic debate for too long; it degrades it still.

There are people who claim to know the solution to our problems, and beckon us to follow them into the forest in the hope of getting out on the other side. The problem is that too many of these people can’t see too well, and their compasses are broken. If we unquestioningly follow them, we may be stuck in the forest for a long time.