NI private sector needs to pay more

It has been mentioned before that Northern Ireland’s public sector pays 43% more on average than the private sector. Whatever about “like for like” employment, the simple fact is that this makes the public sector more tempting for our best educated people than the private sector.

In sensible economies, this is the other way around. In return for the job security and pensions that come with the public sector, pay is slightly lower; some of the best people are tempted by this, but others are tempted by the higher pay potentially available in the private sector, despite the fact that it is a more risky career route (and typically does not come with generous pensions and such like attached).

Although some quibble about the precise figure, few dispute the general point that there is an imbalance here. What is interesting, however, is that there are two general responses: first, that it’s a legacy issue and although we should do something about it, “now is not the time”; or second, that we should cut public sector pay (and pensions and everything else) to equalize it with the private sector. There is a third response which rarely rears its head – we should generally raise private sector pay.

This third option seems counter-intuitive at best and ridiculous at worst. How does business help itself by knocking money off its bottom line (by raising it a few lines into its wage bill)? Yet, herein lies the real problem with the economic debate in NI – even asking such a question is a very “public sector” way of looking at the world – yes, in a world of set budgets, raising wages reduces the remainder. However, in a world of wealth creation, raising wages may in fact also raise the overall budget by attracting better people to work for the organization and thus enable it to create wealth faster.

It was notable that the automatic response to Bombardier’s warning that it could not expand in NI without lower corporation tax was that perhaps it should pay lower wages or even reduce staff. Could it be, however, that absolutely the contrary is the case? If companies paid higher wages – yes, much higher wages – they may be able more easily to attract the best NI has to offer (and indeed attract the best to NI) and thus make their investment in NI still more profitable.

Indeed, one of the prime reasons the Corporation Tax Reduction argument has been lost is precisely that businesses refused to say what they would do with the extra money. If they had pledged to re-allocate it to staff wages and training, the political and indeed economic case would have been a lot easier to make. The implicit suggestion that, rather, they would maintain wages at their current ludicrously low levels and hand the rest of share holders (often not based in NI) was the reason the idea never gained any real traction – “all-party support” is not the same as “all-party absolute prioritisation”.

Politicians do need to do their part to better understand the economy and better assist local and investing businesses. However, the blunt truth is that businesses need to do more too – and they themselves should not fall prey to the all-pervasive “public sector culture” which is the precise reason economic re-balancing is so necessary.

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7 thoughts on “NI private sector needs to pay more

  1. harryaswell says:

    You forget that the Private sector relies on being competitive in order to get orders and hence be able to create jobs. There are NO jobs today. That is the reality. To increase salaries is merely a recipe for disaster! Increased salaries = increased non-competitiveness = less jobs than ever = company down the tubes! – However, the Public sector, which includes Civil Servants, Teachers and many professionals, does indeed have “very” inflated salaries and pensions, bonuses etc. That IS the obvious way to go. Cut their salaries by degrees, not all at once. Has the Corporation Argument actually been lost yet? I hadn’t thought so! I had thought also that the businesses had indeed said what they will use the monies for, expansion!

    • There are two separate issues here.

      Firstly, I disagree fundamentally with you on what “being competitive” means. I caution against overstating Germany’s strength, but on your own terms Germany is not competitive – a business in NI will face less red tape, lower taxes, and lower wage bills than in Germany. Yet Germany’s businesses are creating jobs (unemployment in Germany is now lower than it was at the start of the crisis), and NI’s aren’t. On your own terms, that isn’t possible. So why is this, do you think?

      Secondly, there is the political reality. By all means have your friend Mike Nesbitt take the UUP into the next election openly advocating lower public sector pay, reduced pension entitlements and no bonuses. Go on, I dare you…!

    • With apologies, forgot your last point – I’ve blogged several times on why the Corporation Tax argument has been lost comprehensively, both politically and economically.

      The current UK government was elected in May 2010. 30 months on, and the silence is deafening.

      • harryaswell says:

        I am sorry, you are talking total rubbish! The German economy is huge compared to NI, and it has a very flourishing car and engineering industry. It is a large country on it’s own. NI is a part of the UK. You simply cannot compare the two. WE have NO jobs! Until we do, all your bombast is mere rhetoric. As for lower Public sector pay, we all know that is the real answer. However, I fail to see what your remarks about Nesbitt has to do with anything. Any changes with Public sector pay would have to be from Westminster and be agreed cross-party, and cross-Union as well! You certainly can be very obtuse at times!!
        Regarding Corporation tax. DO you read the papers, watch TV news? If you don’t you should do. Theis has been discussed recently for all to see!

  2. IJP,

    Good piece and one which you know I largely agree with. At the end of the day, I understand where Harry is coming from, however, I am of the opinion that as the old saying goes ‘if you pay peanuts you’ll get monkeys’; public sector pay is not huge, no one should kid themselves on that score.

    As someone who works in the private sector (as does both of his siblings) yet my mum works in the public sector, I know that she and many of her colleagues are not on great money by any stretch of the imagination, in fact the normal salary for a public sector employee here in the North is usually somewhere in the region of £12k pa, a pittance if I may say so.

    I think where Harry is mistaken is in the opinion that low wages is the be all and end all. At the end of the day, I had a choice of whether to go into employment up North or in Dublin; I chose the latter as they paid better and now they have had the pleasure of being able to use someone with a lot of experience and qualifications and we both got something out of my time in employment (I’m not shopping myself here for work btw :)).

    Also, and not wishing to put words into your mouth, I will read into your comments re Germany and it’s economy as that spending more money on better trained and equipped staff adds value to your business, making you better and more competitive? If so, yes, I agree with that to a very large extent, it’s a no brainer tbh, yet business in the North doesn’t like the idea of others getting paid for the huge amount of training and effort they have put in to date.

    Look, from my experience, business people are fairly forthright in their opinions and ‘know what’s good for all’, but that’s not really the case. They’re business people, not economists and they should not be treated as having a better insight on macro-economics than others as their knowledge is usually narrowly focused, like a lot of other people in society. I am not for one moment saying we should disregard their opinion (business is very important), but we need to remember they are human after all. Don’t agree with me? Look at bankers for an example of former masters of the universe who we now see are just as fallible as the rest of us.

    Business men are only concerned with their bottom line (and rightly so), huge swathes of them are not concerned about society in general. They may say they are but look at what they agree to in the main, it simply doesn’t stack up.

    • Exactly right re Germany (and you yourself confirm the point re Dublin).

      Germany competes not because it provides cheaper labour or lower taxes (it doesn’t), but because it provides better products and services. And it provides better products and services because it is prepared to pay for the best people and fund proper public services for them to use. “Competitiveness” therefore derives not from being cheap (and thus getting the worst), but from paying decent money for the best.

      • With the way the world is now people can move into a job anywhere a whole lot easier than 10, 15 or even 20 years ago. Myself, I’m off to Aus as the work on offer in this part of the world is not great and I’ve always wanted to live, work and see that part of the world. We’re mobile and willing to go where our talents are appreciated and see a bit of the world.

        Now, take an area in the North where people are recompensed well in comparison to most others, IT. The quality of graduates is excellent and rather than try and find work elsewhere they are willing to stay and find work in Belfast and elsewhere. And more and more top firms are coming here, offering good wages, great prospects and interesting work. My friends have told me that we are going through something of a ‘purple patch’ in this industry and cannot believe the work that is on offer here; they’re genuinely amazed, and good for them.

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