ECONOMIC INSIGHTS

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EXECUTIVE SUMMARY

In the first of our Economic Insights series of white papers, we consider the vexed question

of public sector pay in Ireland. The overwhelming evidence is that public sector pay rates in

Ireland are unusually high relative to the private sector and by European standards. Hence, any

successor to the Lansdowne Road agreement should limit pay rises. Also, given the uncertainty

of Brexit, pay rises should be conditional on the on-going performance of the economy.

Negotiations on a successor to the Lansdowne

Road Agreement are set to begin in the first half of

2017. Ahead of these negotiations, the government

has tasked a newly established Public Sector Pay

Commission (PSPC) to assess appropriate pay

levels. In this white paper, we consider the evidence

on how Irish public sector pay levels compare with

those of the private sector and with other countries.

Our key findings on public sector pay

The Public Sector Pay Commission must highlight

gaps in pay and pension provision

Our view is that public sector pay (including the

positive impact of increments) should at most

rise in line with the private sector. Ideally, the pay

gap should close over time. Public sector pay

rises should also be conditional on the on-going

performance of the economy and tax revenues,

guarding against the risks from Brexit, corporate tax

reform and other economic uncertainties.

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Average public sector wages are €47,400

in Ireland, 40% higher than in the private

sector before allowing for differences in

pension entitlements and job security.

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At most, around half of this pay gap (20%)

can be attributed to differences in education,

experience, qualifications and other factors.

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In the United Kingdom, average public

sector wages are £26,200 – almost exactly

in line with the private sector (£26,300) and

lower than in Ireland.

Ireland’s public/private pay gap is high by

European standards, similar to southern

European countries. Lower-paid public

servants benefit most from the pay gap.

The public sector enjoys retirement benefits

that need to be taken into consideration. Our

calculations indicate that a private sector

worker would need to save €590,000 to

buy an annuity that matched public sector

career-average salary pensions of €23,000

per annum.

At current annuity rates, a pension that

provided €22,000 of annual income (above

the contributory pension) would cost

€1 million.

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