13/2/20: Civil Services Effectiveness Index 2019 and Ireland

Analysis of public sector efficiencies and effectiveness is a hard and empirically imprecise exercise, with severe risks of running against the very powerful interest groups. Nonetheless, with governments and public sector taking an ever expanding role in management of our society, economy and geopolitical spheres, this task is hugely important.

2019 International Civil Services Effectiveness Index is trying to do exactly that. The index can be accessed via https://www.bsg.ox.ac.uk/about/partnerships/international-civil-service-effectiveness-index-2019.

Ireland (score 0.62) ranks overall respectably above the 38 countries average, in the 14th place, below Switzerland (score 0.65), tied with France and Austria, and just ahead of Spain (score of 0.60). Chart below maps Ireland against Finland (ranked 4th with score of 0.88) in terms of overall index:

• In terms of civil service Capabilities metric, Ireland (0.72 score) is closer to the average (0.61) than to Finland (0.85). 
• In Crisis and Risk Management, Ireland (0.65) significantly underperforms Finland (0.98), ranking close to average (0.63). 
• In Digital Services, Ireland (0.52) ranks well below average (0.61) and miles behind Finland (0.83). 
• In Fiscal and Financial Management, Ireland scores on the average (0.59) and below Finland (0.73).
• Surprisingly, Ireland performs strongly (score of 0.99) in terms of HR Management in the civil service. Or maybe not, given the strength of the unions in Irish civil service.
• In Inclusiveness and Openness, Irish Civil Service is at or below the group average, and well below Finland.
• In Integrity, Ireland scores 0.68, which is closer (somewhat) to Finland's 0.79 and well ahead of the average (0.54). 
• In Policy Making, not surprisingly, Irish civil service score is mediocre 0.67, closer to the average of 0.56 than to Finland's 1.0.
• Procurement systems are stronger in Ireland (0.69) than in Finland (0.57) and above average (0.54).
• Regulation scores are one area where Ireland substantially underperforms the group average (see chart below).
• Finally, Ireland performs well in Tax Administration.

Focusing on just the areas of major underperformance, here are summary charts for the five categories in which Ireland's civil service falls close to or below the group averages: 

Ireland's underperformance in Digital Services, Openness and Regulation are especially worrying, as these categories should be closely tied to the presence of major ICT leaders in Ireland. This presence has commonly been cited by the Irish officials as a source of technological modernisation of the Irish economy, giving Ireland an alleged competitive edge over the more traditionally-focused economies in terms of adoption, deployment and utilisation of digital services, data analytics, data intensification of decision making etc. If these claims are genuinely descriptive of the Irish reality (a massive 'if'), there is a puzzling lack of transmission of the technological capital intensification of the Irish economy to the civil service in the country. 

For all it caveats, the data presented by the study is interesting and points to a number of areas where Irish civil service and public sector can deliver some gains in efficiency and quality of services delivery. 

26/7/2013: Forfas Report 2012: A Handy Guide to 'Egg-Face' Collision

Ireland has been described as a 'Knowledge Economy", a science and R&D intensive economy, and island of Scholars (yes, while ago we also allegedly had saints). We have enough science development policy 'platforms' to fill TCD's Long Room. And we do spend some dish on funding science.

One of the organisations, responsible for shaping policy and assessing effectiveness of all of these and other 'platforms' is Forfas - a state body in charge of economic policy supports. You can read all the glorious descriptions of what Forfas does here: http://static.rasset.ie/documents/news/forfas-annual-report-2012.pdf

And this week, RTE reported the following nice stats about this beacon of knowledge and research (full article here: http://www.rte.ie/news/2013/0724/464489-forfas-pension/?goback=%2Egde_2825341_member_260797418)

• "The pension scheme at State enterprise body Forfas has a net deficit of almost €1.2 billion" (to be more precise: €1,187,674,000 - up 22% from €972,389,000 in 2011). Note: "Forfas administers the pensions of a number of agencies including Forfas, Enterprise Ireland, IDA Ireland, Science Foundation Ireland and the predecessors of those agencies."
• "The report also states that 78% of last year's €51.4m Oireachtas grant to Forfas went to pay pensions - with just 22% spent on policy activities, corporate and shared services."
• "The cost of payments to pensioners rose from by over 23% from €35.3m in 2011 to just under €43.5m last year."
• But wait, there's more: "'non-effective expenditure' of €1.4m relating to rents for unoccupied office space.

On top of the figures highlighted in the RTE article, here are the actual breakdowns from the annual report:

• EUR79.052mln was total income received by Forfas from all sources in 2012, down on EUR79.229mln in 2011.
• Pensions spending was EUR61.372mln in 2012 or 77.63% of total income. In 2011 the same was EUR60.424 or 76.27%.

So: EUR43.5m on pensions, EUR1.4m on wasted rent, our of EUR51.4m grant means that Forfas has managed to spend ca EUR44.9m from EUR51.4m on… err… being a well-housed pension administrator. Less than 12.65% of the organisation grant went to fund its activities.

Seriously, folks, this does not give one much confidence in getting 'value for money'…

Updated: A comment from a senior science body head in Ireland: "I was gobsmacked to see this figure. I wonder how much of the country's so-called €500m 'science' budget goes on pensions? This is not to begrudge retired public servants their entitlements, but we should be transparent about what we spend on science & what we spend on other things."

20/12/2012: Pensions, health costs & education fees for 2014-2015

Staying with the IMF report on Ireland, and with the theme of 2014-2015 adjustments, here's again what the IMF had to say on what we should expect from the Government:

"The authorities should outline the remaining consolidation measures for 2014–15 around the time of Budget 2013 (MEFP ¶8). The program envisages additional consolidation of 3 percent of GDP over 2014–15. Taking into account the measures already specified for these years (such as on capital spending), and carryover savings from earlier measures, new measures of about 1½ to 2 percent of GDP remain to be identified for 2014-15."

I wrote about the above here. But there's more:

"To maximize the credibility of fiscal consolidation, and to reduce household and business uncertainties, the authorities should set out directions for some of the deeper reforms that will deliver this effort. These could include, for instance, on the revenue side, reforming tax reliefs on private pension contributions; and on the expenditure side, greater use of generic drugs and primary and community healthcare, and an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost."

Further, per box-out on Health costs overrun: "there is scope for increased cost recovery in respect of private patients‘ use of public hospitals"

Hence, per IMF, the Government should hit even harder privately provided pensions (on top of the wealth tax already imposed), thus undermining even more private pensions pools and increasing dependency on state pensions. For those of us with kids, IMF - concerned with already unsustainably high personal debt levels - has in store more debt. This time to pay for our kids education. And for those of us with health insurance, there is more to pay too.

The above combination of measures is idiocy of the highest order. Per IMF, Irish economy is suffering from private debt overhang which leads to more deleveraging, less consumption and less investment. And these lead to lower growth. I agree. But what IMF is proposing is going to:

• Increase private debts and reduce the speed of deleveraging, and
• Raise the demand for already stretched public services.

This is the Willie Sutton moment for Ireland: the state (with the IMF blessing) is simply plundering through any source of money left in the country is a hope of finding a quick fix for Government insolvency. Now, with low hanging fruit already bagged, this process is starting to directly impact our ability to sustain private debts. But no one gives a damn! As Sutton, allegedly claimed, it makes sense to rob banks, because that is where the money are. Alas, with banks out of money, the Government, prompted by the IMF 'advice' is going to continue robbing us.

So a message to our Pensions industry, which hoped that going along with expropriation of customers' funds via pensions levy would allow the industry to avoid changes to tax incentives on pensions (the blood of the sector demand). Prepare for tax reliefs savaging. Once you fail to stand up to the bullies and protect the interests of your customers, you deserve what you are going to get. Every bit of it.

19/12/2012: Fiscal Issues, flagged by the IMF

Keep on reading the IMF report, folks. Nice little bots on offer regarding the fiscal programme performance.

Platitudes abound, well-deserved, but...

"A combination of slower growth, higher unemployment, and the over-run in health spending, have dimmed prospects for any significant fiscal over performance in 2012. Indeed, given the weak economic conditions, only about half of the 6 percent of GDP consolidation effort over 2011-12 has translated into headline primary balance improvement. [Meaning that we've been running into a massive headwind, with pants caught on rose bushes behind us...] Nonetheless, the authorities‘ consistent achievement of the original program fiscal targets despite adverse macroeconomic conditions gives confidence in their institutional capacity and commitment to consolidation."

Question is, when will rose bushes thorns get our fiscal pants shredded? We don't know, but here's the road ahead:

Of course, we knew this before, but it is a nice reminder that Enda Kenny's claim that Budget 2013 is going to be the hardest of all budgets is simply bull - the above figures have to be delivered on top of Enda's 'hardest' Budget 2013. Per IMF, however:
"The program envisages additional consolidation of 3 percent of GDP over 2014–15. Taking into account the measures already specified for these years (such as on capital spending), and carryover savings from earlier measures, new measures of about 1½ to 2 percent of GDP remain to be identified for 2014-15.

"To maximize the credibility of fiscal consolidation, and to reduce household and business uncertainties, the authorities should set out directions for some of the deeper reforms that will deliver this effort. These could include, for instance, on the revenue side, reforming tax reliefs on private pension contributions; and on the expenditure side, greater use of generic drugs and primary and community healthcare, and an affordable loan scheme for tertiary education to enable rising demand to be met at reasonable cost."

In other words, the Government will have to find somewhere around €3-3.2bn more cuts/tax hikes in 2014-2015 on top of those already factored in for 2013.

Now, in spirit with IMF paper, let me reproduce for you a box-out from IMF report on public sector wages in Ireland:

Enjoy the above - you can enlarge the text by clicking on the images.

16/6/2012: IMF Report on Ireland: Public Sector Pay Reforms

Continuing with analysis of the IMF Article IV report on Ireland, the first post dealt with headline assessments of economic performance and risks, the second post dealt with mortgages distress. In the present post, I am focusing on the IMF analysis of our public sector pay and pensions.

Box 5 on page 25 of the report [ as usual - emphasis and comments are mine]:

"Ireland’s compensation for public employees rose by 3.5 percentage points of GDP (and GNP) in the pre-crisis boom." [In other words, public sector compensation costs rose faster than GDP and GNP growth during the boom.]

"During 2000–08, the gross exchequer pay bill rose 118 percent in nominal terms, driven by staff numbers rising 35 percent and average pay increases of 61 percent. In ESA95 terms, by end-2008, compensation had risen to 11.2 (13) percent of GDP (GNP) and one-third of primary current spending, above European levels, especially the original 11 Euro Area economies." [Not only our public sector remuneration rose above that of the EA11 average, but it has done so during the period when public services delivered to the population actually contracted due to previous privatizations and the expansion of private services substitutes (e.g in education and health, as well as transport etc). The cost of maintaining diminished public services provision also rose despite the fact that we had progressively lower proportion of old age population that requires more extensive and more expensive public services.]

"The authorities’ immediate crisis response included pay cuts and a hiring moratorium, followed by a multi-year agreement with unions on staffing reductions and efficiency-enhancing reforms. After a breakdown of the tripartite Social Partnership Agreement in early 2009, public wages were cut by 13.5 percent, on average, over two years." [The IMF does not distinguish between cuts and pensions levy, although, as I pointed out on a number of occasions before, pensions levy is in effect a cut as well, since it is not ring-fenced.]

"The cuts were progressive, with those earning over €100,000 facing net pay reductions of up to 30 percent. In March 2010, the government struck a new multi-year deal (Croke Park Agreement (CPA)) with public sector unions, protecting workers against layoffs and further wage cuts, in exchange for a validation of the 2009–10 pay cuts and cooperation on voluntary retirements, redeployments and other efficiency measures (such as reform of non-core-pay entitlements) to help achieve targeted pay bill savings. Other measures since adopted or in progress include: for new entrants, a 10 percent additional reduction in salaries and a unified (less generous) public service pension scheme; for public service pensioners, a 4 percent average levy; and a €200,000 salary cap." [IMF fails to point out that the salary cap does not hold. However, IMF is correct in pointing out the progressivity of pay cuts. IMF also fails to note that at least some of the reductions have been achieved by effectively undercutting new staff and temporary staff pay and employment.]

"By end-2011, these measures had delivered net annual savings of €1.7 billion. Lower pay rates and staffing levels have helped reduce the net exchequer pay bill by €2.5 billion, but there has been a €0.8 billion increase [emphasis is from IMF] in the net pensions bill, the latter driven by a 53 percent rise in pensioner numbers since 2008 (mostly reflecting demographic trends, but also the

impact of early retirements). With additional net pay and pensions savings of €0.2 billion projected for

2012 and €0.6 billion over 2013–15, the ultimate annual savings by 2015 are €2.5 billion (or 0.7

percentage points of GDP). Nonetheless, as a share of GNP, the net exchequer pay and pensions outlay in 2015 is projected to be 0.4 percentage points below the 2008 level, representing a relatively modest decline." [It is clear that the IMF is not impressed by the dynamics in either pay or pensions savings. I would like to see a more detailed assessment of the 'demographics' trend that could have resulted in a 53% increase in the number of pensioners since 2008, but my suspicion is that it is completely imaginary.]

On the positive side: "The authorities’ approach, thus far, has helped keep industrial peace, protect frontline services, raise public sector productivity, and deliver agreed savings in a durable way. The cuts in employment have been strategic rather than across-the-board, focusing on the health sector while protecting teacher numbers given the rising number of school-going children. A similar targeted approach is being adopted on the pay side: by reining in hospital and police overtime costs (through smarter rostering) and sick pay. The authorities are also currently reviewing options in relation to out-of date allowances." [The focus on healthcare cuts relative to education is also consistent with IMF-favored, and I must agree with them here, adjustment path that stresses the need for skills retainment and investment during structural adjustments. It is also reflective of our younger demographics. Alas, the real issue, ignored by the IMF, is the currently inadequate healthcare system in Ireland, as well as the fact that majority of health costs cuts took shape via increases in involuntary private health substitution and costs. Shifting burden of healthcare onto those who cannot pay it (the middle class) while pretending that they are the 'wealthy who can afford private insurance' is a false 'saving' as it simply reduces the overall private spending and investment in the economy already starved of both, while faking non-tax 'revenues' increases and health sector balancesheet improvements.]

7/6/2012: QNHS Q1 2012: Sectoral Decomposition

In the previous post I covered the top-of-the-line data on QNHS for Q1 2012. This time, lets take a look at some sub-trends by occupation and public v private sector numbers.

A handy summary table to outline changes by occupation:

Few surprises in the above table are:

• Twin (q/q and y/y) rises in Wholesale & Retail Trade category, 
• Y/y rise in Accommodation and food service activities with a level increase of 8,600. This appears to confirm the Government claims on the sectoral jobs creation on the foot of jobs stimulus. The problem with comparatives is that the y/y increase comes on foot of a sudden decline in employment in the sub-sector in Q1 2011 when it fell to surprisingly low, seasonally-unjustified level of 102,900. Sub-sector employment remains down on Q1 2010 when it stood at 123,700 or 12,100 ahead of Q1 2012, and it is down on Q4 2011 when it was at 113,400 against Q1 2012 at 111,600. The core factor in Q1 2012 differential on Q1 2011 might have been not so much jobs creation as the increased expense of jobs reductions under Budget 2012. This, however, is speculative argument at best. My suggestion would be to wait and see how the numbers employed in the sector pan out in Q2 2012.
• Another surprising thing is that in the category of skills closely aligned with Accommodation and food service activities there was a decrease, not an increase, y/y in terms of employment. Caring, leisure and other service category of workers saw employment drop from 142,300 in Q1 2011 to 141,500 in Q1 2012. Something is not adding up, unless the jobs created in the sub-sector were managerial and/or associate professional and technical.
• Not surprisingly, ICT sub-sector grew employment y/y with 6.81% increase on Q1 2011 - the only private sector sub-sector that posted an increase in jobs on 2007 levels (+5.31%), with only other two sectors adding jobs on 2007 levels being Education (+4.64%) and Human Health and Social Activities (+6.57%).
• For all the claims of MNCs employment gains, the core sub-sector of Professional, Scientific and Technical Activities has seen employment shrinking, not rising in Q1 2012 relative to Q4 2011 (-0.53%), to Q1 2011 (-7.56%) and on 2007 (-15.44%). Striking feature of these changes is that this sector was the hardest hit in Q1 2012 of all sub-sectors listed by CSO, amidst the robust IDA and Government claims that jobs creation in MNCs is ongoing and that R&D and innovation activities are booming.

In the core series for sub-sectors:

• There was a recorded rise in Education sub-sector. Employment in education stood at 144,200 in Q1 2012 - up 2.2% (or 3,100) on Q4 2011 and down 2.2% (-3,200) on Q1 2011. Since Q1 2007, employment in the sector grew by 4.64% or +6,400.
• Employment levels in Health and social work activities fell q/q by 1.96% (-2,000) but are up on Q1 2011 by 1.72% (+4,000). Compared to Q1 2007, Q1 2012 employment in the sector is up 6.57% (+14,600). 
• The two sectors above represent front-line services in their definition.  Between them, during the austerity period the two sub-sectors added 29,700 new jobs.

And lastly, two charts on dependencies ratios. Without any comment.

12/12/2011: QNHS Q3 2011 - Take 2

Another quick note on the QNHS latest data:

• Total labour force is now down 147,600 on peak levels
• Total employment is down 346,800 on peak levels
• The demographic dividend is bust.

Table of sectoral changes to summarize latest data (note, public sector data is from the main QNHS, so it is less accurate than data reported in previous post):

Notable differences arise in terms of part-time and ful-time employment changes. relative to pre-crisis levels, full-time employment is down 21.5% while part-time employment is up 9.6%. Thus, overall quality of employment is deteriorating rapidly. But while yoy full-time employment is being displaced by part-time employment -3.69% to +1.76%, qoq both part-time and full-time employment is shrinking.

Relative to pre-crisis levels, employment is down in all sectors except Transportation & Storage (+3.28%),  ICT (+9.35%),  Education (+3.02%), and Human Health and Social Work Activities (+9.46%).

Overall number in employment is down 15.82% on pre-crisis levels. Meanwhile, of sectors that posted declines in employment over the same period:

• Largest declines were recorded in the collapsed Construction (-59.53%), in the allegedly-booming Agriculture, forestry and fishing (-28.9%) and Industry (-23.25%). 
• In addition, Administrative and support services (-20.25%) and Accommodation and food service activities (-18.01%) posted deeper than average cuts.
• Shallow cuts were recorded in Financial, insurance and real estate activities (-6.12%) and Public administration and defence; compulsory social security (-5.45%)

12/12/2011: QNHS Q3 2011

Headline unemployment number out of QNHS for Q3 2011 is at 14.4% up on 14.2% in Q2. This is bad, but not as bad as two other core labour market performance parameters.

On a seasonally adjusted basis, Irish employment fell by 20,500 (-1.1%) in Q3 2011. This follows on from a seasonally adjusted fall in employment of 4,100 (-0.2%) in Q2 2011 - an acceleration of 5-fold!

Unemployment increased by 15,700 (+5.3%) in the year to Q3 2011 and the total number of persons unemployed now stands at 314,700.

Meanwhile, the long-term unemployment rate increased from 6.5% to 8.4% over the year to Q3 2011. Long-term unemployment accounted for 56.3% of total unemployment in Q3 2011 compared with 47.0% a year earlier and 25.5% in the third quarter of 2009.

The total number of persons in the labour force in the third quarter of 2011 was 2,120,300, representing a decrease of 30,200 (-1.4%) over the year. This compares with a labour force decrease of 51,800 (-2.4%) in the year to Q3 2010.

Charts to illustrate the above:

Adding to this emigration, the above chart paints the picture of mass-exodus from the labour force, most likely due to twin effects: layoffs and tax increases.

Now, updating figures for public v private sector employment:

 CSO provides more accurate, by their own admission, figures for public sector employment in the Table A3 of the QNHS release. Here is the summary, excluding temporary Census 2011 staff:

• Civil service employment in Q3 2011 stood at 39,900, up on Q1 2011 39,500 reading and unchanged on Q3 2010. In Q3 2008 the same number stood at 43,000 so net reductions on pre-crisis level are 3,100 or 7.2%.
• Total public sector excluding Semi-State bodies stood at 339,900 in Q3 2011, down 8,400 on Q3 2010 and 5.6% lower than in Q3 2008.
• Total public sector employment including Semi-State bodies is now at 392,900, down from 399,000 in Q1 2011 and down 8,200 on Q3 2010. Compared to Q3 2008, public sector total employment is down 24,000 or 5.8%.
• Total private sector employment is at 1,123,600, down from 1,147,800 (-2.1%) year on year and down 194,800 on pre-crisis levels or -14.8%.

So to summarize - public sector employment is down 5.8% relative to pre-crisis levels, while private sector employment is down 14.8%.

17/09/2011: QNHS 2Q 2011 - public sector v private sector trends

This is the second post on the data from QNHS for 2Q 2011.

Table below summarises data from QNHS results, showing changes for specific sectors of the economy as well as core figures for overall employment, labor force and unemployment.
Using the data from core QNHS we can compute decomposition of employment pool into three broadly defined subsectors, as shown below. The core trends here are the following:
Ratio of private sector employees to those employed in public sector now stands at ca 2.76 private sector workers per 1 public sector employee. Sacred yet? That ratio rose from 2.73 in (an improvement, in fact) qoq between 1Q 2011 and 2Q 2011, but is down from 2.78 in 2Q 2010 and 3.00 in 2Q 2009. In other words, there are fewer private sector employees now per each public sector employee than in either 2010 or 2009 or indeed in 2008 and so on.

The same is true across the specific sectors. There are more people in employment in education per private sector worker now than 2007-2010, there are more people employed in public administration per private sector worker now than in 2007-2010, there are more people employed in healthcare per person employed in private sector today than in any moment since 1Q 2004. This, after the allegedly savage cuts in numbers in public sector employment.

QNHS also now reports EHECS-based public sector employment estimates. Table 1.1 below (reproduced from QNHS release) shows the estimates of public sector employment broken down by the different high level areas within the public sector. I've added the red line below showing proportional allocation of employment - the number of private sector workers per each public sector worker. This only slightly differs from the same metric I derived above based solely on QNHS. Again, there are, broadly speaking, 2.82 persons working in private sector per each 1 person in public sector. A year ago, there were 2.86, 2 years ago, there were 2.85... savage cuts folks? Not exactly. Looks more like continued steady burden on private sector from supporting public sector employment.
That's a tough thing to swallow, folks. Per CSO: "The number of employees in the public sector showed no change over the year to Q2 2011. However, the employment figures for this quarter include 5,300 additional temporary Census field staff who were employed during the periods covering Q1 and Q2 2011. When these staff are excluded there was a fall of 1.3% in employment over the year to Q2 2011." Give it a thought, folks - a fall of 1.3% when unemployment rose 3.93% and underemployment went up 20.89% and employment fell 2.1% and private sector employment declined 2.4%.

"The number of employees in the public sector has continued to fall over the last three years with a total decrease of 24,600 up to Q2 2011 when excluding census field staff." Drama unfolds? Let's check that table above. Since 4Q 2008 through 2Q 2011:

• Private sector employment is down 12.9%
• Civil service employment is down 7.5%
• Semi-states employment is down 8.5%
• Total public sector ex-semi-states employment is down 5.5%
• Total public sector employment is down 5.9%
  

Draw your own conclusions as to whether the Croke Park is delivering or not.

13/02/2011: Public Sector Earnings - the need for change hasn't gone away

A quick run through the numbers in employment and pay rates for the public sector for 2010.

A note of caution: these figures do not cover commercial semi-states or local authorities. Thus, per DofF accounts statement, there were 380,953 people on the direct Exchequer payroll in 2010, which includes 277,540 employees and 103,413 pensioned individuals. These exclude commercial semi-state employees 52,300 per latest figures available (Q3 2009) and employees of the regional bodies 37,000 (Q3 2009). The combined figure, therefore, is closer to 470,253 (of course, this omits those who are on semi-state pensions and who are in the receipt of pensions from local authorities and bodies).

Now, on to the numbers.
So HSE accounts for 36.8% of the total numbers in employment and on pensions as well as for 40.2% of the total pay bill. Education & Science account for 32.6% and 33.03% respectively. The third largest employer on the Exchequer balance sheet is Garda Siochana with 6.74% of the total employment and pensions numbers and 7.11% of the total wages and pensions bill.

Now, let's take a look at private-public sector comparatives at the aggregate levels:
Self-explanatory, really. But some more detailed comparisons are here:
The above figures relate (except for Exchequer balance sheet average employees) to CSO data for Q3 2010 on earnings and labour costs.

Next by the departments:

Enjoy the absolutely absurd outliers - the Appeals Commissioners - enjoying the total staff of 4 being paid, on average, 107,500 per annum. If one of these 4 employees a receptionist or staff worker, on, say 40,000 that would make the other 3 earning on average 130,000... that's of course is a pure hypothetical. Then there's the cost of our "International Cooperation" workers - hard at labour, the 190 employees here earn a meager wages of just 78,874 per annum on average. One can understand high earnings in highly professionally-concentrated services, such as for example the Attorney General (75,713 pa - still high, but we can give them a break), but what does the President's Establishment do to earn on average (for its 22 staff) 67,955 - which is in excess of average earnings in ALL subcategories of employment reported in the table above?

In fact, lets take as a benchmark the highest average earnings in the economy by sub-category (omitting public sector employment) - those earned in Information & Communication sub-category (50,203pa). Of the 38 sub-groups on the total Exchequer payroll, 23 sub-groups earn more on average than the highest earning economic group in the private sector. 16 sub-groups actually exceed by more than double digits (in percentage terms) the average annual earnings of the highest paid sub-categories in the private economy, as shown in the table below:
That, folks, takes some doing to achieve...

15/01/2011: Austerity and structural deficits

In recent days, there have been some questioning responses to a series of posts I did earlier this month on Irish Exchequer results for 2010. In particular, some queried my concerns with the long-term deficits and the dynamics of Irish Exchequer deficit.

Well, here's an EU official confirmation of my analysis: "As displayed in Graph 12, the distance of the deficit – corrected for the business cycle and one-off measures, i.e. structural deficit – from the medium-term budgetary objective (MTO) is particularly large (more than five percentage points of GDP) in twelve Member States." (from Brussels, 12.1.2011 COM(2011): GROWTH SURVEY, ANNEX 2, MACRO-ECONOMIC REPORT)

As the chart below clearly shows - Ireland's structural - recession effects-adjusted - deficits are in the league of their own:
Austerity, folks, or not - we are still living beyond our means when it comes to public expenditure. And when it comes to our austerity metrics (the blue bar), it is clear that much more remains to be done and that the worst Budget is yet to come.

Economics 7/10/10: Irish Government Spending habit

Our leadership - from the Minister for Finance to the heads of the Central Bank and various quangoes, to the affiliated leading business figures are keen on pointing the finger for Ireland's troubles at the banks. While the banks are certainly responsible for much of the problems we face, there are other troubles, of an equally pressing nature, that besiege our economy courtesy of the direct decisions taken by the Government.

Exchequer problems ex-banks are a good starting point for taking a closer look at our grave condition.

Irish Exchequer is expected (by the DofF) to bring in some €32 billion in Tax Revenues this year. The Government is expected to spend some €19 billion or 59.4% of the total tax take on its Wages and Pensions bill.

Imagine a household that is paying almost 60 percent of wages earned by those of its members working to purchase household services. Alternatively, imagine a household with a single earner where a person working earns, say €50,000pa and has a spouse who is engaged in full time household work. The implicit cost of such household work (labour alone) to this family, using our Government's metrics, would be €30,000 net of tax.

What would any household do in these circumstances? Of course - send the spouse into workforce and hire substitute services (childcare, cleaning, cooking etc)... What does the Irish state do? It signs a multi-annual agreement with the unions that ensures that the taxpayers will see no reprieve on wages and pensions bills they pay for Public Sector.

Now, let's put things into perspective. 2003 Exchequer Tax Revenues were at the same (nominal) level as the expected revenues this year - €32 billion. Exchequer Pay and Pensions bill was €13 billion or 40.6% of the total tax take.

So between 2003 and today, Irish Exchequer has managed to increase its exposure to public sector pay and pensions costs by a massive 46.2%. In the mean time, due to increased private sector competition (despite such competition being retarded by our regulatory regimes) and continuously improving demographics (younger population and a rising share of population with access to superior foreign public services, such as health - aka the immigrants), the overall public sector responsibilities in terms of services provision have actually declined.

Back to household analogy here - we've got a houseworker in the family who is now armed with newer technology, reducing time and effort input into work, as the cost of such houseworker to the family is rising by almost 50%.

Recap the top-line figures: pay and pensions bills of our sovereign are up 46%. Ex-exports, our domestic economy income is down 34.4% (see here). A country where 1.4 million private sector workers are forced to living beyond our means to pay the wages and pensions for some 470,000 public sector employees?

Mad stuff, but then again, Irish Public Sector is more like a WAG in its expectations of pay and performance, than a Cinderella.

Economics 2/8/10: External corruption - Ireland's scores

Transparency International published Progress Report 2010: Enforcement of the OECD Convention on Combating Bribery of Foreign Public Officials (July 28).

The main conclusions of the report:

• Active Enforcement: Denmark, Germany, Italy, Norway, Switzerland, UK and US;
• Moderate Enforcement: Argentina, Belgium, Finland, France, Japan, Netherlands, South Korea, Spain and Sweden;
• Little or No Enforcement: Australia, Austria, Brazil, Bulgaria, Chile, Czech Republic, Estonia, Greece, Hungary, Ireland, Israel, Mexico, New Zealand, Poland, Portugal, Slovak Republic, Slovenia, South Africa and Turkey.
  

TABLE A: FOREIGN BRIBERY ENFORCEMENT IN OECD CONVENTION COUNTRIES

TABLE B: STATUS OF FOREIGN BRIBERY CASES

Detailed findings (relevant to Ireland):

1) Inadequacies in Legal Framework

• Jurisdictional limitations (e.g. Australia, Canada, Czech Republic, Denmark, Estonia, France, Greece, Ireland, Israel, Japan, the Netherlands, Poland, Spain);
• Lack of criminal liability for corporations (e.g. Argentina, Brazil, Czech Republic, Estonia, Germany, Greece, Ireland, Italy, Japan, New Zealand, Poland, Turkey);
• Inadequate sanctions (e.g. Brazil, Chile, Denmark, Estonia, Germany, Greece, Ireland, Japan, Korea (South), the Netherlands, New Zealand, Poland, South Africa, Sweden, Switzerland, Turkey).
  

So Ireland scores poorly in 3 out of 6 categories.

2) Inadequacies in Enforcement System:

• Inadequate complaints system and/or whistleblower protection (e.g. Argentina, Australia, Austria, Belgium, Brazil, Chile, Czech Republic, Denmark, Estonia, Greece, Hungary, Ireland, Israel, Italy, Korea (South), Mexico, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Turkey).
  

So Ireland scores poorly in 1 out of 6 categories.

Overall, Ireland's performance is below satisfactory by category, but not below the average (by country). Ireland's performance is also significantly below all other small and significantly open to trade economies (except Austria).

This, however, should not be confused with the measures/performance in terms of our overall corruption. I would expect that TI's forthcoming report on overall corruption perceptions in Ireland will show significant deterioration on past performance due to significant 2009-2010 newsflow of revelation of some of the worst governance practices in public sector and banking.

Economics 16/10/2010: Organizational systems and uncertainty

I came across this very interesting, and to me - far reaching - paper on the effects of organizational structures on the organization's ability to cope with uncertainty and change. Karynne L. Turner, Mona V. Makhija. “Measuring what you know: an individual information processing perspective” (April 15, 2010). Atlanta Competitive Advantage Conference 2010 Paper (here).

According to the information processing perspective, the organization’s ability to draw upon and utilize information is dependent on the relationship between structure and the ability of individuals to process information, facilitated by specific organizational aspects of the firm. The study considers the effect of two types of structure, organic (integrated or systemic) and mechanistic (siloed), on individuals’ ability to gather, interpret and synthesize information, and their problem-solving orientation. Evidence shows that individuals develop more information processing capability under organic than mechanistic structures, which in turn creates more problem solving orientation in individuals.

In short, the study lends support to the premise that better integrated, more diversified across skills and less siloed organizations produce more effective and efficient gathering, processing and interpreting of information, as well as better problem solving.


Effective management of knowledge is the basis of firms’ ability to compete (Zander and Kogut, 1995; Nonaka, 1994). This is achieved through organizational design (Teece at al., 1997) that underlies “the means by which firms acquire, disseminate, interpret and integrate organizational knowledge”.

Organizational structure embodies a number of key elements, such as control and coordination or management mechanisms, and human capital management that allocate tasks to work units and individuals, and coordinate them in a way that achieves organizational goals. The manner in which this is done is critical due to problems created by

• External uncertainty associated with suppliers, competitors and consumer demand (Gresov and Drazin, 1997; Sine, Mitsuhashi and Kirsch, 2006), or
• Internal uncertainty, due to the complexity of internal coordination, measurement difficulties and changing processes (Habib and Victor, 1991).
  

Uncertainty reduces the effectiveness of pre-established routines, technologies or goals, and increases the importance of problem solving (Becker and Baloff, 1969)). The more work related uncertainty increases, the greater the need there will be for information processing (Turner and Makhija, 2006 and Tushman, 1979).

One way in which an organization addresses uncertainty is by assigning specific responsibilities to specialized subunits, which collect, process and distribute information acting as “a set of nested systems” (Daft and Weick, 1984).

Literature distinguishes two types of organizational structures, mechanistic and organic. These structures differ in the distribution of tasks, the flow of information among individuals and across units, and the extent to which there is interaction with the environment (Shremata, 2000; Gibson and Birkinshaw, 2004).

Mechanistic forms of organization are characterized by hierarchical division of labor, in which communication tends to be in one direction – top to bottom. Individuals develop deep expertise in their own designated jobs, which tend to be clearly specified and specialized in individual knowledge. The mechanistic structures do not allow for much flexibility (Parthasarthy and Sethi, 1993).

Organic forms of organizations are based on horizontally-administered teams, in which all members participate in management decisions (Baum and Wally, 2003), allowing for worker autonomy, responsibilities adaptation. Team members developing competence across multiple tasks, thus diversifying their skills and knowledge sets. Individuals have broader unit-level knowledge rather than just one job and develop greater flexibility.

The structural differences between mechanistic and organic organizational forms are likely to influence the development of information processing capability in organizational members, reflected in organization’s ability to gather, interpret and synthesize information. Turner and Makhija (2010) consider the impact of different types of structures on each of these three aspects of organizational members’ information processing capability.

Turner and Makhija (2010) postulate a set of testable hypotheses all of which are confirmed:

H1: Organic structures lead to more gathering of information than mechanistic structures.
Implication: uncertainty is reduced in organic (integrated or more horizontal) structures through reduced information asymmetries vis-à-vis external environment.

H2: Organic structures lead to more similarly interpreted information than mechanistic structures.
Implication: information asymmetries are reduced across the broader range of the organization structures in the organic setting.

H3: Organic structures lead to more synthesized information than mechanistic structures.
Implication: organic systems are better capable of integrating information of various types.

H4: More gathering of information is associated with greater problem solving orientation.
Implication: organic systems are better able to cope with converting uncertainty into manageable risks systems.

H5: More similarly interpreted information is associated with greater problem solving orientation.
Implication: better information processing in organic systems results in better problem solving, so information is used more effectively.

H6: More synthesized knowledge is associated with greater problem solving orientation.
Implication: individuals also tended to synthesize, or understand the interrelationships among different types of information, much better than individuals working in mechanistic structures.

H7: Information processing capability mediates the relationship between organizational design and problem solving orientation
Implication: the effects of individuals’ information processing on their problem solving orientation is greater in the organic structures, reflecting their comfort with problem situations in their work.

Turner and Makhija (2010) research shows that, when operating in two different types of structures, individuals process information differently in all three respects: gathering, interpreting, and synthesizing information.

These findings have several far-reaching implications for the organizational structures found in Ireland.

Firstly, it is clear that hierarchical and fixed systems approach to public services provision – characterized by the lack of communications between vertically-integrated public sector departments and organizations leads to their inherently lower ability to absorb, process and implement informational processes that manage uncertainty.

Secondly, this shows why successful entrepreneurial ventures are horizontal in nature and less siloed.

Third, it shows that our political system – with disproportionate powers allocated to the executive, as opposed to more uniform distribution of powers between the executive, legislative and judiciary – is similarly to the public sector less equipped to handle uncertainty.

Economics 12/05/2010: How not to do austerity...

How not to do austerity? Well, Ireland is a good example.

For all the tough talk about reforms and changes to spending habits of the public sector, the new employment in civil service document released two weeks ago, drawn up by the Department of Finance envisions that staffing levels will fall from 37,376 estimated for the end of 2010 to 36,594 at the end of 2012. That’s a whooping (or in terms of SIPTU/ICTU savage) drop of 782 workers, or less than 2.1%. The resultant savings, assuming jobs cut will be at the media level of pay for the civil service, will total a massive €39.41 million per annum. Translated into our public sector’s spending habits, that’s about 16 hours and 20 minutes of our deficit financing for the first 4 months of this year. Not counting the banks costs.

The Government has told the nation before that the new public service pay and reform deal negotiated with unions at Croke Park last month will "substantially" reduce the number of State employees over the coming years. Hmm... guess 2.1% is philosophically ‘substantial’, even if not economically substantive.

But wait, these are gross savings, pathetic as they might be. To get to the net figure, we must factor in early retirement incentives doled out to civil servants by Brian Cowen in Supplementary Budget 2009 and golden handshakes for voluntarily leaving staff.

So take a rule of thumb - the cost of laying off civil service workers ranges around 15-20% of their total annual salary per year of service – once the value of pensions and redundancy payments are factored in. This is very, very much conservative, given the one-off payments and other perks accruing to retiring public sector workers and given that their tax liabilities collapse upon the retirement, especially over the first year. Take 15% on the lower end and assume that average tenure of the workers leaving the service is around 15 years (lower-end assumption as those taking early retirement would more likely to be more senior than that).

What do you have? The cost – and not all of this obviously will hit the taxpayers at one single shot, but most will – will be around €133,400 per worker reduced. And that’s at the lower end.

Savings of €50,294 per annum, at a cost of €133,400 means that given our Government’s innate inability to manage its own workforce, the first time we, the taxpayers, will see positive net savings on the deal (assuming opportunity cost of funds at 5% and automatic stabilizers on the salary payments to public sector workers at 30% - income tax, levies, etc - none of which are going to apply under voluntary retirement) September 2015!

I am not kidding you – September 2015! By which time, of course, the Unions would have forced the Government to get a new Benchmarking going…

Folks, we are now truly turning the corner!

Economics 25/04/2010: Forfas' mathematical modeling powers

Name and shame, folks. The table below is reproduced from Forfas' "Profile of employment and unemployment" publication from February 2010. The research paper itself is not really worth covering in any depth, as it contains broadly speaking nothing new. But the table below is worth one's attention. Irony has, it is sourced as "CSO Quarterly National Household Survey, Forfás calculations". One can really see the quality of 'calculations' deployed from the sophisticated mathematical Scribbling Model developed by the 3-year olds in a Montessori University and adopted by Forfas research staff. Superb!
Oh, and just in case you might think there are real calculations used anywhere later in the paper in relation to this table, don't be fooled - the entire computational burden here is that of adding percentages! Too bad they never attached a detailed breakdown of their costs that went to cover this glossy production...

Economics 18/12/2009: Public Sector Earnings & Employment

Per CSO release today: is the Government is losing the fight to keep this economy afloat?

"Average weekly earnings in the Public Sector (ex Health) rose by 2.5% in the year to September 2009 from €945.18 to €969.11 per week. This compares to a rise of 3.2% in the year to June 2009."

Weekly earnings for

• the Regional Bodies rose by 4.6% (from €815.58 to €852.71)
  
• the Education Sector by 3.0%, from €944.49 to €973.10.
  
• An Garda Síochána, inclusive of overtime, fell by 0.8% from €1,196.19 to €1,186.37 per week. Their weekly earnings excluding overtime decreased slightly by 0.1% from €1,077.55 to €1,076.22 for the same period.
  

Over the four year period from September 2005 to September 2009, average weekly earnings in the Public Sector (excluding Health) rose by 14.2% from €848.94 to €969.11:

• Regional Bodies’ earnings rose by 15.3% (from €739.27 to €852.71),
  
• Semi State by 17.2% (from €902.95 to €1,058.46),
• An Garda Síochána, inclusive of overtime, rose by 8.8%,
• Education Sector rose by 11.5% in this period,
  
• Civil Service and the Defence Sector rose by approximately 18% (from €797.37 to €933.03 and €691.28 to €815.58 per week respectively).

Natural attrition with recruitment bans has produced a decline in PS employment from 369,100 in September 2008 to 360,900 in September 2009 - a decline of 8,200 or 2.22% - way too small compared to the declines in private sector employment and labor force. But the natural reduction rate is accelerating - there was a decrease of just 2,700 in a year to June 2009.

Nonetheless at this rate, it will take Ireland about 20 years before we reach the reasonable levels of public sector employment, comparable to other countries, which stands, given our size of labor force and lack of functional military sector, at around 250,000.

In the year to September 2009 employment in Regional Bodies fell from 40,400 to 37,000, a decrease of 3,400. In the same period there were 1,200 fewer people employed in the Civil Service where numbers dropped to 38,100 in September 2009. Employment in the Health Sector fell to 110,200 in the year to September 2009, a drop of 600. Employment in An Garda Síochána rose by 500 from 14,200 in September 2008 to 14,700 in September 2009.

In the four years to September 2009, employment in the Public Sector rose by 17,300 to 360,900

• Education Sector from 84,700 to 97,200, an increase of 12,500
• An Garda Síochána rose by 2,400 from 12,300 to 14,700,
  
• Health Sector from 101,500 to 110,200, an increase of 8,700,
• Regional Bodies employment decreased from 38,200 to 37,000, a drop of 1,200.

Updated charts as always (note, data goes back to Q1 2005, unlike CSO's latest release).

Employment numbers first.

Earnings last:
With two details: earnings by category within and outside 1 standard deviation of the mean:showing the lack of overall volatility in the public sector earnings, which shows that the argument offered by the unions that some occupations in PS earn less than others is simply statistically not true. They all earn pretty much the same:
Not a single sub-sector of the PS falls outside 2 standard deviations from the PS mean. Of course, homogeneity is the sign of the lack of proper pricing relative productivity. Then again, it is public sector we are talking about.

Economics 01/12/2009: A real breakthrough of Mr Cowen

So per latest reports, the nation is saved. Facing a systemic deficit of €14bn per annum, the leaders of the Social Partnership have been contemplating a dramatic reduction in the cost of Government business. The dramatic news from the Government buildings, suggested a pay cut for public sector workers of 5% gross, or less than 3% net, delivering something to the tune of €836mln in gross savings (as claimed by the unions). Which, of course, will be clawed back to less than €600mln through automatic stabilizers (taxes on earnings paid through taxes and so on - per reported estimates by the DofF). For a moment, it all looked like our Taoiseach Brian Cowen reigned over the business-as-usual at the Partnership Table.

Credit for derailing this 'savings' deal goes to the public outcry, the media, a handful of backbenchers, the Department of Finance and also to Brian Lenihan - all of whom have managed to restore our policy back to senses. The numbers bandied around by the unions' heads were simply not adding up.

For a moment - it all looked like:
As one fellow economist described the 'New Deal' to me: “a Dora the Explorer bandaid on a shark bite”. Optimist he is – more like a prehistoric shark bite, judging by its gaping size.

Now recall, Brian Lenihan has promised three things to the nation and the EU:

1. cut €4bn in deficit this year and the same next;
2. no new taxes (except for carbon tax and, may be, higher taxes on the so-called 'rich');
3. cut €1.3bn in public sector spending
   

As long as the talks with the Partners are dragging on, this is becoming an impossible trinity of policy objectives. Will Joseph Brodsky's ending for his Elegy serve as a perfect descriptor of the Government's real legacy in the history of Ireland?

... And it says on the plinth
'commander in chief'. But it reads 'in grief', or 'in brief'
or 'in going under'.

Oh, and one last thingy - if you think that €600mln in 'savings' ever had a chance of materialising, think of public sector workers taking a 14-day holiday who will have an option to do agency work to replace their own jobs... earning a nice tidy premium...

Economics 21/11/2009: Public v private sector income inequality is up, again

Updated images files

There are many claims flying about our bearded men of Siptu and Ictu nowadays. None are more offensive than their claims that private sector has not been hit hard in terms of wages and earnings by the current crisis. Well, thanks to CSO's inability to collect timely and frequent data, we had to sit back for some time, tolerating these unionist claims. Alas, data for Q2 2009 is starting to show that those of us who said that private sector is suffering earnings declines while public sector is basking in the sunshine of rising earnings were right. Here are the numbers:

Table 1 reports actual average weekly earnings based on CSO data sets. Yep, that's right -public servants make more money than the average managerial, professional and clerical grade in every other sector except financial services and insurance. Note, I separated electricity, water supply and waste management sector into quasi-public sector because it is heavily dominated by massively inflated earnings in ESB and other state monopolies.

Next, consider average weekly earnings for professional and clerical grades and for public sector overall. The reason for this is that our unionists keep on droning that public sector workers are so superior to the average worker in the rest of economy that they must be compared with higher grades. Forgive my disbelief that, say, CIE's bus drivers are so productive and so highly skilled that they should be benchmarked against branch managers of Irish banks, but let us indulge the Siptu/Ictu crowd:
Yes, it says that: between Q2 2008 and Q2 2009 more categories of public sector workers started to earn in excess of private sector average earnings for managers, professionals and clerical workers. And this is at the time when Jack O'Connor and the rest of Unions' leaders are talking about rising tide of income inequality (oh, give me a sec and I will get back to that concept).

Now, chart above shows that wages have been rising across all (but one) public sector sub-sectors. Average public sector earnings are up 3.2% in a year to the end of Q2 2009, while average private sector wages are down 6.8% over the same time - a swing of 10 percentage points. Happy times for CPSU and the rest of the unions pack.

Of course, years ago, when we had fast growing private sector wages, the unions, CORI, the rest of the social pillar fringe were loudly bemoaning the rising tide of income inequality. So what can we say now? Check out the following table:
Yeps, that's right, applying Socialists' faulty economic logic, last year our Trade Unions' policies have led to a rise in income inequality between private and public sector in favor of higher income to public sector.

If anything, the latest CSO data suggests that the next month's Budget 2010 should open with a significant across the board cut in public sector wages by at least 10% (to simply undo income inequality that has been generated since 2008), and only then proceed to all other cuts. Have a pre-Budget Addendum on Public Sector Earnings Inequality first, before you cut education, health and even social welfare, Minister.