Ireland should look at public sector wages - OECD

DUBLIN Fri Nov 25, 2011 7:36pm GMT

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DUBLIN (Reuters) - Ireland should consider cutting public sector wages to reflect falling private sector incomes even if it means breaking a key deal with unions, a senior official at the Organisation for Economic Co-operation and Development (OECD) said on Friday.

The government has pledged not to cut public sector pay further and avoid forced job cuts as long as unions agree to voluntary redundancies and longer working hours under the "Croke Park" deal, an agreement that has helped avoid social unrest.

But stringent austerity targets and cuts to sensitive areas such as free health care for the poor are increasing pressure on the government to reconsider its decision not to touch the public sector pay bill.

"I think our advice would be that at a time when private sector wages are adjusting rapidly it would be prudent to also put into the hopper public sector wages and working conditions," John Martin, Director of Employment, Labour and Social Affairs at the OECD told journalists in Dublin.

"If the agreement constrains the ability of the government to make some changes in that regard, I think our view would be there should be a bit more flexibility," he said.

The Croke Park deal has been widely cited as a reason that Ireland has not experienced the kind of social unrest seen in Greece since it accepted an EU-IMF bailout. Public sector unions signalled they may strike if the deal is breached.

Ireland expects to post its first GDP growth this year since 2007 and has received praise from European Union and International Monetary Fund for its implementation of an austerity drive to cut its budget deficit.

But its domestic economy remains stagnant and unemployment has trebled since a property bubble started to unravel in 2007 and has remained at a stubbornly high level of around 14 percent for the past 12 months.

Ireland faces an "enormous challenge" in bringing down unemployment, and cutting the proportion of people who have been jobless for a year or more -- which has increased from 25 to 50 percent since the country's property boom collapsed, Martin said.

It would take at least 6-8 years to cut unemployment by half -- to the level in Northern Ireland -- even if Ireland's export markets recover quickly from the current market turmoil he said. "There's a very long hard road ahead."

Ireland is spending enough money on labour programmes -- around 4 percent of GDP -- but it needs to increase incentives for unemployed Martin said.

He said the government was on the right track in its decision to merge integrate the provision of employment services and benefit payment services

""What they are doing is absolutely in the right direction. But the real question is how is it going to be implemented," he said.

(Reporting by Conor Humphries; editing by Ron Askew)

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