Croke Park 2 Will Mean an Average Real Pay Cut of 10%

The pay-cut deal that public sector workers will soon be voting on is different from pay cuts in the past.  Previously, pay cuts were based on a percentage of the basic pay.  So, if you were earning €40,000 and the Government cut your pay by 5 percent, then you just take that 5 percent off the top.  Your wage is cut by €2,000.  Easy to calculate.

The current buffet of cuts, however, involve layers of reductions that interact with each other – all putting downward pressures on wages:  Sunday premium, extra hours working, twilight pay, increments freeze, etc.  Different sets of workers will suffer different impacts.

However, we can establish an average pay cut.  The Government is proposing a reduction of €938 million.  However, not all of this will come out of workers’ pockets.  Reducing public sector employment doesn’t impact on current wages (though it impacts on working conditions and quality of public services).  As well, increasing working hours represents a cut in the hourly wage; however, the annual wage remains the same.

So when we exclude these two items we find that the proposed pay-cut deal has an impact of €688 million on workers’ wages.   This reduction represents approximately 4.8 percent of the Exchequer payroll.

  • So, on average, public sector workers will experience a 4.8 percent cut in their pay.

As we said above, this is just an average.  For some workers it will be less; for others it will be more – especially for those working varying shifts.  But, on average, it will represent a 4.7 percent cut in workers’ pay.

But in real terms it will be more, much more.

When we say real terms, we refer to inflation.  If you earn €40,000 this year and this is frozen for next year, but inflation is 2 percent, your wage next year is worth 2 percent less (or €39,200).  This is not an abstract calculation.  The price of goods and services will rise but your pay is the same.  So you will have the same amount of money but you will find yourself purchasing fewer goods and services.  If inflation is 2 percent, you would need a pay increase of that same amount just to stand still.

Inflation is rising.  The Government projects that inflation will rise by 1.7 percent this year, 1.8 percent next year and 2 percent in 2015.  That’s a rise of 5.5 percent over the lifetime of this proposed pay-cut deal.

So what does that mean for public sector workers?

  • On average, public sector workers will suffer a real pay cut of 9.7 percent up to 2015.

For some workers it will be less but for many the real pay cut will be even more.

And this is doesn’t count further tax increases – or for households with children, further cuts in Child Benefit or other income supports.  When you factor in property taxes and water charges, after-tax income will fall even further.  And if personal tax credits are not inflation indexed (not likely), this will mean even more real cuts in disposable incomes.

The only mitigating factor in all this is increment payments.  But there are a number of people who do not receive these; for others they will be frozen until after 2015; and the total amount of increments is falling rapidly – they now make up a fraction of the total pay bill.

So when workers come to vote on the pay-cut deal – look behind the numbers on the page.  For, on average, you will be asked to cut your real pay by 10 percent over the next three years.

And that’s a big, big cut.

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