What do international public service pay comparisons tell us?

17th September 2012

The IMF’s brief discussion of international public service pay comparisons in its September 2012 country report on Irelandis just one interpretation of how Irish public service pay rates compare to those in other countries.

According to the IMF, Irish public service pay was 11.2% of GDP in 2011. This compares to an OECD average of 10.8%, or 11.1% for OECD countries who are members of the EU. In other words, Irish public service pay is roughly in line with comparable EU countries as a percentage of GDP even before you deduct the so-called ‘pension levy’ (an average 7% deduction), which is not included in the figures.

The IMF also made comparisons based on GNP, which is significantly lower than GDP because it excludes the profits repatriated by foreign companies operating in Ireland. The GNP comparison makes Irish public service pay look significantly higher than rates in comparable countries although, again, it does not take account of the so-called ‘pension levy’.

However, foreign companies are taxed on what they produce here, so any assessment of our budgetary options needs to take account of their role in the Irish economy. By using GNP as a measure, you bump up Ireland’s public pay figures by excluding a large chunk of foreign direct investment activity, even though taxation income accrues from that activity and helps pay the public service pay bill. The tax income includes income tax paid by staff of foreign multinationals and corporation tax on profits which, alone, is estimated to generate about €3.5 billion of exchequer income a year.

In any case, all our ‘troika’ and EU targets are based on GDP. So it would be odd to take a single aspect of the budgetary picture – public service pay – and base policy on a different measure from everything else.

The IMF is not the only source of international public service pay comparisons either. The latest, most up-to-date and comprehensive data on international public sector labour costs comes from the OECD. Its 2011 report found that Irish hospital consultants and top central government managers – like departmental secretaries – are paid well by international standards.

But, aside from these stark exceptions, the OECD report found that the cost of employing Irish public servants is about average when adjusted for price differences by measuring ‘relative purchasing power’. Relative purchasing power is routinely used in international comparisons of pay in the public and private sectors. Similarly, recent Irish legislation on setting minimum pay rates in low-paid sectors (the Industrial Relations (Amendment) Act 2012) also requires that any international pay comparisons must take “into account the cost of living in the Member State concerned.”

The OECD says its figures capture the so-called ‘pension levy’ but not the pay cuts (also worth an average of about 7%) imposed in 2010. You can read more about the OECD report HERE.