44% and all that

There has been surprising (well surprising to me anyway) response to a front-page article from last weekend’s Sunday Independent.  Here are some extracts from the article which ran under the headline:

Private-sector pay now 44% behind

The pay gap between workers in the public and private sectors has widened to 44 per cent since the recession began, according to a study carried out by a firm of international economic consultants.

The Indecon report, for the Sunday Independent, reveals that, on average, weekly pay in the public sector has increased by three per cent since 2007.

However, the Indecon report shows that, before tax, the average public sector worker earns €871 a week -- or €269 a week more than the average private sector worker, who receives €602 before tax.

There is no disputing that 871 is a number that is 44% higher than 602.  We could reverse the comparison and say that private sector workers get paid 31% less than public sector workers but that is just a different way of saying the same thing.  However, let’s focus on the 44% difference between public and private sector workers.

Firstly, these figures do not come from an “Indecon report for the Sunday Independent”.  These figures might be in this report but they actually come from the Central Statistics Office.  The CSO publishes a quarterly Earnings, Hours and Employment Costs Survey from which this information was drawn but the source was not cited.

The latest release of the EHECS was published on the 16th June (six weeks ago!) and can be read here.  There has been some analysis of the results of the EHECS on this site here.  Table 2 on page 6 of the EHECS release provides the figures that Indecon refer to: average weekly private sector pay is €602.85 and average weekly public sector pay is €871.09. 

Secondly, we will explore how real this 44% difference is for these notional “average” private and public sector workers.  In annual terms these weekly rates correspond to an annual salary of €31,348 for the  private sector and €45,297 for the public sector.

Using a fairly simple tax calculator we can work out the net pay of each worker.  The private sector worker earning €31,348 has a net pay of €25,875 or €498 per week.  The public sector worker earning €45,297 has a net pay of €29,993 or €577 per week.

Although in gross terms there is a 44% difference between the wage rates when we consider the take home pay the difference falls to 16%.  A €268 advantage for the public sector worker in gross weekly pay is reduced to €79 by the time the money reaches the worker’s pocket.

Here is a summary of the figures provided by the tax calculator.

Although some of the difference is accounted for tax and PRSI it is clear that the pension deduction of zero for the private sector worker and nearly five thousand for the public sector worker has a huge effect.

The pension deduction for the public sector worker of €4,886 is made up of two components:

• There is a €2,106 deduction as the employee contribution to the individual’s pension, and
• There is a €2,780 deduction for the Public Sector Pension Levy.

The above comparison is therefore not strictly valid as it compares a private sector worker making no pension provision against a public sector who is.  Next we will assume that the private sector worker makes a 7.5% pension contribution.  Here is the updated table.

In this instance the “average” public sector worker takes home 25% more than the “average” private sector worker making an employee pension contribution of 7.5%.  The private sector worker does not, nor cannot, pay the public sector pension levy so this seems a much fairer comparison to make. 

In any case, trying to suggest that the public sectors earns 44% more than the private sector is wide of the mark.  There is no doubt there is a difference, and I will leave it to others to debate the merits or otherwise of this, but it would be helpful if we could at least start the debate with meaningful figures.