In recent years the Irish economy has been operating at capacity, reflected by full employment in the labour market. This run of economic success has seen rapid growth in high-paid jobs, especially in sectors dominated by foreign multinationals. However, although these multinationals are providing a huge chunk of tax revenue, their buoyant position is now putting pressure on other areas of the economy.
Between 2013 and 2023 multinational employment grew its share in Ireland’s wage bill from 26 per cent to 34 per cent. This reflected both the strong jobs growth of these companies and the high pay of employees in the sectors they dominate. For example, at the end of 2024 average weekly pay in IT was about €1,660, more than 70 per cent higher than the average across the economy.
The rapid growth in well-paid high-tech employment has put significant upward pressure on housing prices, as workers in this sector can afford to pay more for accommodation. As of now, there’s no sign of any slowdown on the way in growth of multinational jobs so this house price pressure is likely to continue to grow until eventually housing supply manages to catch up with demand.
The public sector is competing for talent in this tight labour market. An Economic and Social Research Institute study conducted 20 years ago showed that, at that time, public-sector workers were paid almost a quarter more than equivalent private-sector staff, when controlling for people’s qualifications.
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The financial crisis that struck in 2008 brought about a painful, but necessary, reduction in the public-sector pay premium. From 2009 to 2015 the gap was gradually reduced, bringing average public-sector pay rates broadly in line with the private sector today. However, average pay masks differences in the balance of advantage to private- or public-sector workers between higher and lower paid staff. Detailed Central Statistics Office analysis suggests that higher-paid public-sector workers are today earning less than their counterparts in the private sector, whereas the opposite is true for lower-paid public servants, who do better than their private-sector peers.
If the economy continues to boom, but housing remains scarce and expensive, some rebalancing mechanism may be needed to allow the public sector attract and keep the staff needed for vital public services
This analysis of pay differentials is controlled for educational attainment and a range of other factors, but it is a summary measure. It is increasingly clear that across a range of areas the public sector is unable to attract people with the necessary skills or to hold them once they are fully trained.
The Defence Forces are one such example, especially the Naval Service (not helped by challenging working conditions at sea) and the Air Corps. There’s also a healthy demand in the private sector for the skills developed in the Defence Forces, offering a way out.
Schools are finding it difficult to recruit teachers, with Dublin a particular black spot, given the cost and scarcity of accommodation. Young teachers are liable to be outbid by well-paid tech sector workers for a place to live.
It’s not easy to fill teacher places from those who qualified abroad, unlike the health service where there is strong international recruitment for nursing and support staff. Those who come here and keep our health service going often put up with more difficult living conditions than locally recruited staff.
Labour shortages are already impacting on public services, children’s disability services being a particular case in point. If the economy continues to boom, but housing remains scarce and expensive, some rebalancing mechanism may be needed to allow the public sector attract and keep the staff needed for vital public services.
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Public-sector pay deals have typically provided standard rates of increase across the board, but with a weighting towards the lower paid – helping lower-paid public servants leapfrog their private-sector counterparts.
To attract staff to key areas, it may be necessary to selectively increase public pay rates. For example, higher pay rates in the Defence Forces, a Dublin weighting for lower-paid teachers (and in other high-price housing areas), or bonus pay to attract and retain staff in mental health or disability care services may be warranted. A permanent change in pay differentials might reflect more difficult work or more challenging working conditions. However, any allowances linked to the high cost of accommodation should be time-limited, and phased out when housing supply and demand return to balance.
Moving away from the traditional model for determining public-sector pay holds many dangers. It could imperil the relative peace in industrial relations experienced in recent decades. However, unless there is greater flexibility in future public pay deals, to provide better rewards where staff shortages are most acute, a deterioration in public services may be the outcome.
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