Pay discipline holding in private sector

Relatively few pay deals concluded during 2003-4 exceeded the wage rise norm set out in Ireland's current national partnership agreement, Sustaining Progress. Pay discipline has remained quite firm in the private sector, especially compared with the years of the 'Celtic Tiger' economic boom in 2000-1. These are among the findings of an analysis published in January 2005 by Industrial Relations News.

In January 2005, the independent weekly Industrial Relations News (IRN) published an examination of 'above the norm' pay deals concluded under Ireland’s current national pact, Sustaining Progress (SP), which was negotiated in early 2003 (IE0301209F and IE0304201N). It finds that the number of such agreements has been much lower than under the previous national pact, the Programme for Prosperity and Fairness (PPF) (IE0003149F), but higher than under earlier national deals, which date back to 1987.

The IRN analysis examines 35 'above the norm' (ATN) pay deals, over and above the terms of SP, from 2003 up until the end of 2004, which were recorded in the publication over the two-year period. More ATN deals might be in the pipeline if, as expected, the economy accelerates again in 2005. Of course, much will depend on international events, which policy-makers in Ireland can do little to counter, IRN notes. A major external shock in the form of global terrorism, continuing turbulence in the Middle East, changes to the price of oil, or the further depreciation of the US dollar against the euro, could all affect pay determination.

The IRN list of ATN deals is not exhaustive, but gives a reasonable indication of what is happening on the pay front in unionised employment in Ireland. IRN states that is possible to conclude that, by and large, pay moderation has largely remained intact under SP, even though the factors which previously helped to enforce pay discipline in the early years of Ireland’s centralised social partnership agreements, such as a labour surplus/high unemployment, no longer serve to underpin pay discipline to the same extent. Nevertheless, global and domestic competitive pressures in product and service markets are an omnipresent factor, which, to varying degrees, enforce pay discipline at company level.

IRN also compared the proportion of ATN deals under SP with the number under the five previous national agreements, and the main reasons for possible fluctuations above or below the norm.

Sustaining Progress unusual

Unusually, the pay element of Sustaining Progress was divided into two 18-month stages, as a result of economic uncertainty when it was negotiated in early 2003. Stage one of the pay element of SP expired at the end of June 2004 in the private sector, and at the end of December 2004 in the public sector - due to a six month pause.

In early September 2004, the social partners formally ratified the second stage of SP - the main aspect being a pay increase worth between 5.5% and 6% over 18 months (IE0409203F). Along with the 7% paid under the first stage of the agreement (in three instalments of 3%, 2% and 2%), the total increase over the 36 months of SP thus amounts to 12.5%. The second 5.5% increase is to be paid in three phases of 1.5%, 1.5% and 2.5%, plus a further 0.5% for low-paid workers who currently earn less than EUR 9 an hour (or a maximum of EUR 351 a week).

Over the course of 2003-4, 'SP-plus' deals were fewer in number than under the PPF - certainly nowhere near the number recorded under the first two years of the PPF when the 'Celtic Tiger' economic boom was at its peak. However, with unemployment remaining very low at 4.4%, ATN deals have still been more prominent than under the other national wage agreements, especially in 2004.

Inability to pay

Two-thirds of the 35 ATN SP deals recorded by IRN were in 2004, as the Irish economy showed signs of expanding again after what turned out to be a temporary downturn in 2002/3. Consequentially, there were fewer ATN deals in 2003, and employers were more likely to plead inability to pay the basic terms. In relation to this, a novel new way of dealing with 'inability to pay' claims in the private and commercial semi-state sectors was brought in under SP in 2003, through the establishment of a new pay assessment process. A number of employers sought recourse to this process in 2003, but the number of 'inability to pay' claims tailed off in 2004 as the economy picked up (IE0312204F).

Productivity deals

A large number of the 35 ATN pay deals under SP to date were granted in exchange for productivity concessions of one sort or another. In contrast, under the PPF - notably the first half - many deals were 'pure' labour market deals, in the sense that few serious productivity concessions were included. Back then, the priority of many employers was to recruit and retain workers in a very tight labour market.

Certain sectors in particular continue to be characterised by ATN pay deals, notably pharmaceuticals/chemicals and healthcare, which account for nearly one-third of the 35 ATN deals identified. In addition, the catering and food and drink sectors also represent nearly one-third of ATN deals under SP. Some private sector firms, notably Abbott, operate outside the sphere of national agreements, but use these deals as a 'benchmark comparator' when engaging in local negotiations. To some extent, non-union firms also use national deals as a comparator.

Benchmarking

In the public sector, meanwhile, Ireland’s public servants have benefited in the last couple of years from what amounts to a public service 'above the norm' pay deal in the form of the 8.9% average pay increase that was awarded under 'benchmarking' exercises over and above national deals (IE0207203N). Benchmarking focuses on examining pay relativities with the private sector. Concessions, in the form of modernisation and industrial peace, have been expected from workers in exchange.

The majority of SP-plus deals have involved the Services Industrial Professional and Technical Union (SIPTU), which represents more than half the unionised private sector workforce, and is by far the largest union in the country with well over 200,000 members. SIPTU encompasses a broad spread of sectors and has a relatively even geographical spread.

PPF 'boom' years

The PPF boom years of the so-called Celtic Tiger economy (2000-1) were associated with large numbers of pay deals over and above the basic terms. Much of this was attributable to labour market pressures, and a radically different economic climate to that of the late 1980s, when the first of the centralised pacts, the Programme for National Recovery (PNR), was negotiated. At the time of the PPF, unemployment dropped to historically low levels, and the labour market was very tight. Unemployment remains at these very low levels today.

The original PPF terms provided for minimum pay increases of 15% over 33 months, in three phases as follows: a 5.5% rise (with a minimum increase of IEP 12 per week) in the first year; 5.5% (with a minimum increase of IEP 11 per week) in the following year; and 4% (with a minimum increase of IEP 9 per week) for the final nine months. However, influenced by cost of living increases, there was a review of the PPF in late 2000, under which workers received a 3% extra pay increase to compensate for inflation. First, workers received a 2% wage rise from April 2001, which means that the second-phase pay award of the PPF increased from 5.5% to 7.5%. Second, workers received a 1% lump-sum award in April 2002. Taken as a whole, workers received a total minimum pay increase of 18% under the PPF.

Given the extraordinary economic growth rates during the first two years of the PPF, and unprecedented labour shortages, it was nevertheless significant that, overall, the majority of unionised employers kept to the terms of the national pay agreement.

Breaching the deal

One reasonably solid indicator of the number of private sector companies that breached the basic pay terms of the PPF is provided by SIPTU data, which, at the time, indicated that about 25% of the employments the union dealt with had gone over and above the PPF. Thus, the compliance rate was still in the region of 75%, even at the height of the Celtic Tiger boom. Further, previous pay analysis by IRN shows that ATN PPF pay deals were particularly evident under the first year of the PPF, when about 100 deals were recorded covering the year from April 2000 to April 2001. By contrast, IRN analysis of PPF-plus deals for the second year of PPF, roughly covering the period from April 2001 to April 2002, found a lower total of 53 deals.

This slowdown in ATN deals is normal in the second year of a national agreement, as many of the employments that agree multi-year ATN deals prefer to conclude them in the early stages of a three-year national wage agreement, rather than the later phases. However, the difficult economic circumstances that began to bite towards the latter stages of the PPF undoubtedly had a major impact on the decrease in ATN deals. The blow to global economic confidence in the aftermath of the 11 September 2001 terrorist attacks certainly had a dampening effect on the Irish economy.

Earlier deals observed closely

The overall PPF pay climate contrasted sharply with the much more acute pay discipline evident under the leaner times associated with earlier national agreements, when economic and employment growth were much weaker, and unemployment was far higher. To illustrate the very high level of pay discipline during the early years of the social partnership agreements, it is worth briefly recalling the 1987-90 PNR and subsequent agreements.

Out of 173 settlements recorded by IRN just a year into the PNR, 163 adhered strictly to the national agreement - a compliance rate of 94%. That compliance rate was broadly maintained, with IRN reporting by mid-1989 - a year and half into the agreement - that the adherence rate was between 93% and 94% based on a sample of just over 900 settlements. This pay moderation trend was maintained into the next deal, the Programme for Economic and Social Progress (PESP). A year into that agreement, IRN reported that, based on a sample of 550 companies, 93% had adhered to the pay agreement. The same pattern was again evident over the course of the third agreement, the 1993-6 Programme for Competitiveness and Work (PCW).

It was only with the advent of the Partnership 2000 (P2000) agreement (1997-2000) (IE9702103F) - and mainly during the latter half of that pact - that adherence to the strict pay terms began to drop off gradually. P2000 might have been expected to be less disciplined, given that by 1996 economic conditions in Ireland had improved and the pay terms of the deal were relatively low - a 9.25% rise over more than three years, even when a local bargaining clause was included. However, while compliance under P2000 fell below the 90% mark for the first time, it still remained at about 88%-89% (IE9906280F).

Commentary

The above pay analysis of national pacts in Ireland dating back to 1987, setting out the reasons for movements either above or below the minimum national pay terms, makes it clear that the level of pay compliance under the current SP pact (2003-5) is much higher than under the previous pact, the PNR (2000-3), but lower than under the PNR (1987-1990), the PESP (1990-3) and the PCW (1994-6). It seems reasonable to assume that the SP compliance levels lie somewhat closer to those under P2000 (1997-2000), though the SP basic pay terms are more generous than P2000.

If the Irish economy does accelerate at a reasonably fast pace during 2005, then we can probably expect some more above-the-norm pay claims to occur under SP, but nothing on the same scale as during the PPF, when the rate of economic growth was nothing short of phenomenal. From this, it can be seen how labour market economics have an impact on national agreements and pay trends generally. The strict pay discipline evident between 1987 and 1997, and the dampening down of pay pressures during 2002/3 (reflected by the recourse to 'inability to pay' claims during the first year of SP under the new procedures) was the direct opposite of what happened during the first two boom years of the PPF, when there was a surge in PPF-plus claims and a loosening of pay discipline.

The one constant is that the pressure on employers to deviate from national agreements - either in an upwards or downwards direction - comes mainly from economic and labour market pressures; although factors such as skill and trade union/worker bargaining power obviously come into play. (Tony Dobbins, IRN)