1 Wage Determination in the Irish Economy: An Economist’s perspective on the Benchmarking Report Paper presented to the Dublin Economics Workshop Annual Conference at Kenmare, October 11-13, 2002 Frances Ruane and Ronan Lyons * Trinity College Dublin I. Introduction The publication of the report of the Public Sector Benchmarking Body (PSBB) on June 30 th may mark a milestone in the development of wage determination policy in Ireland. Its recommendations, if implemented, are set to have a major impact on the public finances and on the patterns of pay remuneration of public servants of all grades). 1 Historically, the process of national wage determination in Ireland has not been the preserve of economists, but rather the domain of the senior representatives of social partnership. Their approaches seem to be primarily dominated by industrial relations (IR) factors (and memories of decades of earlier centrally-negotiated agreements) rather than by any labour market issues associated with, say, structural changes in the Irish and/or global economies. This is not to say that economists have ignored issues of national pay determination but rather that their role in the process has been confined for the most part to examining ex post whether we can afford what is agreed and what its likely effects will be on employment and the public finances. 2 In terms of national pay determination, the recent benchmarking exercise in Ireland is quite different. The body was invited to make recommendations for public sector pay, which were “grounded in a coherent and broadly based comparison with jobs and pay rates across the country”. 3 The tone of the document’s terms of reference (TOR) implies that its recommendations were to be based on very thorough research into sectoral and occupational pay rates across the economy, having regard to four main considerations: to recruit and retain public sector staff, the modernisation of public sector work practices, to ensure equity between public and private workers, and to underpin Ireland’s competitiveness. 4 In principle, the idea of such an exercise should appeal to economists as evidence of the introduction of some economic rationality into * We are very grateful for assistance and advice from Francis Byrne, Bill Carroll, Ciaran Connolly, Michael Errity, Eithne Fitzgerald, John Fitzgerald, Carmel Keane, Aebhric McGibney, Brian Meenan and Mary Murphy in the preparation of this paper. The usual disclaimers apply in spades!!! 1 Because of the obvious vertical relativities, it seems likely that the PSBB’s recommendations will impact at least indirectly on the payment systems for higher civil servants also, even though they are covered by the reports of the Review Body on Higher Remuneration in the Public Sector, the so-called Buckley Reports, rather than by the PSBB. 2 More recently, the issue is typically formulated in terms of whether the pay agreements are consistent with global competitiveness of the private sector and the funds available for public sector pay. 3 PSBB Report, p.13. 4 Paraphrased from PSBB Report, p.14.