Dáil Éireann Debate, Thursday - 17 May 2018
50. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which pay demands in the public and private sectors are likely to impact on the growing economy to a negative or positive extent in the future; and if he will make a statement on the matter. [21924/18]
View answerAs part of the 2018 Stability Programme Update (SPU), my Department forecast growth in the overall pay bill (private and public combined) of 5.7 per cent in 2018. This is made up of growth in average pay of 2.6 per cent, with the remainder due to growth in the number of employees. Pay bill growth is projected to average 5.1 per cent per annum thereafter, with average pay expected to grow at around 3.0 per cent per annum.
To the extent that wage pressures exceed these projections, this could be expected to boost consumption and overall price levels in the near term. However, to the extent that such higher pay rates result in a loss of competitiveness, any positive impact will be offset by lower overall economic activity and lower numbers employed.
Work published previously by my Department titled 'Quantification of the economic impacts of selected structural reform in Ireland' (www.finance.gov.ie/updates/quantification-of-the-economic-impacts-of-selected-structural-reforms-in-ireland/) indicates that a 1 percentage point wage shock which is not offset by a corresponding rise in productivity could be expected to reduce the level of real output (GDP) by ¼ percentage point (pp) within 7 years, add 1pp to the rate of unemployment, and reduce the number of people employed by some 0.4 percentage points.
Insofar as the public service is concerned, the Public Service Stability Agreement 2018-2020 negotiated last year between Government as employer and public service unions and associations provides the framework for affordable adjustments in pay and industrial relations stability. The Agreement provides for the phased unwinding of FEMPI measures on a sustainable basis over the 3-year period 2018-2020 with benefits for public servants ranging from 6 to 7.4 per cent over the period - an average of 2 to 2.5 per cent per annum.
Given downside risks within the international context, it is imperative that wage developments should be commensurate with trends in productivity (output per person employed) over the coming years, in order to avoid a deterioration in Ireland's competitiveness. We will therefore continue to monitor the wage outlook, and labour market and productivity developments.
