Case study


Case study

Question 2

On 14th January 2013, Ian Talbot, Chambers Ireland Chief Executive said when commenting on the need for Croke Park II to be a meaningful deliverer of savings: “The private sector especially those serving the domestic economy has suffered over 500,000 job losses, accepted pay freezes and cuts and experienced numerous other hardships since 2008. The private sector cannot continue to fund the hole in national finances by ever increasing taxes and charges that hurt employment and weaken the domestic economy. Government is the single largest employer in this country. The public service pay and pensions bill accounts for 36pc of spending. Borrowing to fund the deficit must fall further. It is time for public sector unions to recognize reality and secure employment and pensions through the delivery of quantifiable and significant savings urgently that reflect the state of our economy.”


Pensions are a key part of the government spending and an ever-increasing burden on public money. By definition, public service pension refer to unfunded defined-benefit schemes having a future obligation of paying a percentage of the final salary ((Hughes & Stewart, 1999, 19). At present, a greater number of American workers (approximately 7.6m) are members of public sector unions compared to the private sector (7.1m) regardless of the fact that the latter employs about five times as many workers as the former.  The Federal and State governments funds the public service pensions from current taxes collected. The current lack of cost savings or relevant reform to that effect has meant that the there has been ever-increased taxation mainly on the productive sector so as to meet the pension obligations (Tufts & Fairbanks, 2011, 54). In making sure that employers fund their own pension schemes in an adequate manner, the public sector unions have not held itself to the same standards. As a result, a growing number of public sector employers are seeking alternative approaches after realization that such future commitments are indeed not sustainable. The chart below shows the current percentage union membership for American workers.

Chart 1. Percentage Union Membership in the U.S.

(Munnell, 2012, 242)

The main issue relating to public sector unions at present is their demands that are out of touch with the current tough situation of the economy. The public sector unions have stepped up their advocacy for increased pay and pension bills, stretching the budgetary capabilities of the government. The public sector unions base their argument of demanding high pay and pensions for their members on three main points: first, it is held that the bulk of public workers lead modest lives, meaning that finding fault in their desire to improve their standards equals taking away attention from the real perpetrators of the current economic woes – wealthy Wall Street bankers and CEOs (Tufts & Fairbanks, 2011, 213). Secondly, the unions argue that they are defending the dignity of public service and in so doing protecting the middle class from plunging to the bottom if conservatives privatize such work. Lastly, public sector unions play a key role in advancing leftist politics through their efforts to keep the labor movement staggering around.

With the emergence of public sector of employment increasingly becoming a haven of stability and security, a paradox has emerged in the sense that the typical public servant is by far better off than the very people he is meant to serve, with the gap widening significantly with time. The current service pay and benefits of public service workers have grown twice as fast as they have in the private sector. The severity of the sovereign debt crisis has in effect reduced the sympathy that public servants initially enjoyed, and it is for the right reasons (Malanga, 2010, 60).

It is high for the public sector unions to deliver urgently the employment and pension by delivering quantifiable and meaningful savings that are representational of the current state of the economy, as expressly declared by the Croke Park agreement on public service pay and conditions. The Croke Park II agreement aims to save the government a minimum of €1 billion in service pay and pensions bill. There are three main elements being proposed in the Agreement:

  • A percentage cut depending on level of salary
  • An immediate freeze on increments i.e. a significant reduction in either salary or annual leave
  • Reduction in overtime rates as well as premium rates (Chambers Ireland, 2011, 9).

It is the obligation of the government to support jobs and employment. The government often strives to create an atmosphere that supports job growth on the one hand, but staying keen on raising taxes on employment on the other hand. The government and the public sector unions usually divert the attention of the workers from core issues by its perpetual reference to the bank debt, citing it as the cause of all problems; past, present and future. Much government commentary has focused on the tangible savings achieved since the start of the global financial crisis in 2008. While there is argument that the bank debt has significant burden to the state of the economy from the past, present and going forth, it has negligible difference to the current budget dynamics. As matter of fact, the wealth and tax receipts are presently at the same levels experienced in the early 2000s (Chambers Ireland, 2011, 10).

On the contrary, the main problem is the deficit in the current spending. This is especially true considering that it claims over €1 billion more monthly than what the taxes collected to facilitate the operations of the government. According to credible economic evidence, spending cuts as opposed to tax increases are responsible for negligible damage to the economy. In light of this, there is need to desist from benchmarking everything against the rosy figures of 2008, but instead against the earlier period when many people were living beyond their means. In the period between 2001 and early 2008, there was considerable rise in the public sector pay as well as pensions bills from a meager €10.4 billion to €19.3 billion (Malanga, 2010, 65). This can be attributed to the significant increase in the number of workers together with a 61 percent increase in average pay. Public sector unions have wide membership ranging from teachers policemen, firefighters, trash collectors, to librarians.

The rapid growth of public sector worker unionism combine with broader metamorphosis of the American economy has resulted in great divergence between private- and public-sector employments. While the private economy is characterized by cutthroat competition, income inequalities as well as increased layoffs, the public sector is edging towards providing good pay and generous benefits, together with job security which has served to restore stability among middle-class workers. The discrepancy points to the sorry state of affairs of middle class workers in the recent past (Munnell, 2012, 230).

More urgent change is needed in order to get the public finances on a sustainable standing. It is clear that the ground underneath has significantly change for the worst following the effects of the 2008-9 financial crisis. The pension cost will have to fall over time so that a more sustainable balance can be achieved. It is incumbent for the public sector to reduce the current 36 percent of t government spending on service pay and pension bills in order for the United States to remain competitive and a successful economy (Malanga, 2010, 89). Public sector unions should not feel besieged as more and more and states and cities take actions to save money on pensions.

The high cost of public service pay and pension bills continue to have had far reaching effects on the Federal government as well as the States. Add these costs to unfunded pension liabilities remitted retired to government workers amounting to billions of dollars, the state and city budgets are overwhelmingly weighed down (Munnell, 2012, 247). For instance, California has been forced to borrow money a number of times in order to generate budget cash. Similarly, New York has had to delay meeting its income tax refunds obligations for one year carrying forward to the next year, besides having to raid several states funds earmarked for other uses. It was the same story with New Jersey which had to borrow against the monies generated from its share of tobacco settlement with Virginia but failed in making all the required settlements to its pension funds. If the year-on-year public sector pay and pensions bill between 2001 and 2008 had been managed to a more sustainable yet generous 3 per cent, there would have been a significant rise in the bill to €12.8 billion and saving the government €6.6 billion if not over half a billion monthly.  This would have been a better starting point going into the financial crisis. All indications are that lack of action from policymakers and public sector unions would result in exponential growth of the burdens in the coming years.

The public sector unions are squarely the cause of these problems through their actions to reward employees with larger more expensive salaries and pensions. The unions wield rather great political power that forces government to incur more spending for compensation and pension bills of its members. Comparatively, the public sector remunerates more workers at the end of the labor market relative to the private sector. In job groups that are typically public sector, such as policemen, correction officers, and firefighters, union representatives of such workers have taken advantage of their monopoly status and converted them into major gains at the expensive of the government revenue.  When unions fail to secure increases in salaries and wages, they have capitalized on benefits (Reilly, 2012, 154). On average, public workers have earned $1.117 new benefits for every $1 pay increase for an hour. In most instances, employees contribute insignificant contributions for their insurance premiums, if not none at all. In a number of States, state workers are going on retirement with pensions that are way over what they earned during their working years.

There are a number of ways that the public sector can secure employment together with pensions by delivering quantifiable and significant savings immediately that reflect the current state of the economy. First, the public sector needs to move with urgency and adopt Career Average Revalued Earnings schemes, both for the entrants and the existing staff.  As evidenced by the experience from the commercial semi- State sector, reforms can be achieved through agreement with the public sector union and obtain significant medium-term savings in addition  to contributing to sustainable pension schemes.

Secondly, further savings can be obtained from outsourcing a number of non-core activities so as to afford the public services the opportunity to focus on its core functions whilst saving significant amounts of money along with cutting down the number of public sector employees. Such activities would include many backroom services and passport processing. It must be noted that this not advocating for laying off people rather a proposal to transfer employees to organizations or departments with more specialist skills that would optimize outputs as well as deliver improved service and savings.  Many private sector organizations have the expertise and skills to undertake specific tasks in a more efficient way at a relatively low cost to the taxpayer. Targeting for services along with employee numbers to be outsourced following successful models implemented by several commercial semi-State companies.  If the Government’s Action Plan for Jobs is appropriately implemented, it could considerably result in savings to a tune of €1 billion over 10 years (Reilly, 2012, 72).

At the moment and going into the future, there is need for non-confrontation consensus between the government and public sector unions to the effect of having a more unilateral position to reforming the mechanism of our public sector. The government needs to undertake reforms and improvement continuously in the context of achieving savings together with more efficient work practices (Hughes & Stewart, 1999, 20). Where unions prove unwilling to be part of reasonable consensus built reform, the public sector employees should be given reforms for efficiencies. There should be consensus on pay but employees need to deliver as in their job descriptions.

Leaders of the public sector unions need to cease straining the government for high pay rises and pensions bills in total disregard of the current and projected future of the economy. Those bent on frustrating reforms should be weighed against their delivery on independently established targets and be relieved of their duties if their performance is wanting. Workers who still opt for industrial action while a reasonable deal is on the table should also be left out in the cold. In these tight economic times the country can no longer with the trade union mentality of the boom period. The huge sum of tax-payer money that public sector unions use on ballot measures in such states as California and Oregon, for example, are in effect leading to higher taxes together with increased government spending. Generally, the inconsiderate actions of the publics sector unions have negative implications of distorting the labor market, weakening public finances, and diminishing the responsiveness of both Federal and State government in their effort to deliver quality services to the public (Reilly, 2012, 95).

In conclusion, there is for urgent and serious delivery from the public sector unions to the effect of containing the rising costs and realizing much needed savings in the public coffers. It is imperative for the government takes measures to freeze increments for all its employees. In addition, there should be consideration of standard working hours along with allowances and overtime so as to attain necessary savings and return public finance to a sustainable footing. The Croke Park Agreement has had the positive effect of delivering industrial tranquility at a period of significant change in Ireland. Furthermore, it has managed to lock in initially practiced cost savings e.g. the pensions levy. There has also enhanced flexibility across the entire public service in such areas as locations of employment and shift timings.




Chambers Ireland, 2011, ‘The Public Service (Croke Park) Agreement 2010-2014: Summary and Chamber Network Perspective on Next Steps. Pp. 6-14.

TUFTS, B., & FAIRBANKS, L. (2011). Pension Ponzi how public sector unions are bankrupting Canada’s health care, education and retirement. Etobicoke, Ont, J. Wiley & Sons Canada.

REILLY, T. (2012). Rethinking public sector compensation: what ever happened to the public interest? Armonk, N.Y., M.E. Sharpe.

MALANGA, S. (2010). Shakedown the Continuing Conspiracy Against the American Taxpayer. Lanham, Rowman & Littlefield Pub. Group.

MUNNELL, A. H. (2012). State and local pensions: what now? Washington, D.C., Brookings Institution Press.

HUGHES, G., & STEWART, J. (1999). The role of the state in pension provision: employer, regulator, provider. Dordrecht, Kluwer.


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