From Socialist Voice, November 2008

What looks like 6 per cent, sounds like 6 per cent, but isn’t 6 per cent?

From the ‘‘transitional agreement under Towards 2016”:

Private sector

A pay pause of three months (including the construction industry).
     A pay increase of 3½ per cent for six months.
     A pay increase of 2½ per cent for twelve months—or, for workers on €11 per hour or less on the date the increase falls due, an increase of 3 per cent.

Public sector

A pay pause of eleven months.
     From 1 September 2009 a pay increase of 3½ per cent for nine months.
     From 1 June 2010 a pay increase of 2½ per cent—except for workers earning up to €430.49 per week (€22,463 per annum) on that date, who receive a 3 per cent increase. (Source: Industrial Relations News, 23 September 2008.)
     Some low-pay workers to get “extra,” but workers on lower pay to get less.
     If that sounds bad to you, it gets worse!
     Public-sector workers on €415.94 a week at the beginning of the proposed agreement will, after an eleven-month pay pause, receive an initial increase of 3½ per cent followed by a final 2½ per cent increase for the remainder of the agreement, i.e. one month. They will not qualify for the extra ½ per cent increase, as the initial 3½ per cent increase will result in a weekly rate of €430.50—1 cent above the low-pay threshold of €430.49.
     Public-sector workers who do qualify for the extra ½ per cent will be compensated with an additional €2.08 a week for the one month that remains of the agreement—in other words, €9.01!
     This figure will be reduced for those now earning less than €415.93, as their extra ½ per cent will be worth less in real terms, because—as is often repeated—percentage wage increases discriminate against the low-paid, and consequently the discrimination increases the lower the pay.
     The application of the terms in the private sector will mean that those workers on €10.64 per hour are disqualified from receiving the extra ½ per cent, as a first-phase 3½ per cent increase results in an hourly pay rate of €11.01, thus pushing those workers 1 cent beyond the threshold of €11 per hour.
     And those now earning €10.63 or less will qualify for an extra ½ per cent, which at best will be worth 5 cents extra per hour (€10.63 × 0.5%), or 4 cents extra per hour if they are on the minimum wage (€8.65 × 0.5%).

So where’s the 6 per cent?

In real terms, the proposed pay agreement’s 6 per cent increase has a compound value of 6.09 per cent, as the final-phase increase of 2½ per cent accumulates on the initial 3½ per cent increase.
     That said, workers should calculate what extra money they will accumulate as a result of this agreement using one of the following formulas and not be distracted by the headline figure of 6 per cent:

Private sector: [(3.5% of ME* × 6) + (6.08% of ME × 12)] ÷ (ME × 21) × 100 Public sector: [(3.5% of ME × 9) + (6.08% of ME × 1)] ÷ (ME × 21) × 100

*ME: monthly earnings.
     So, for example, if a private-sector worker at the start of the agreement is earning €2,000 a month:

[(3.5% of €2,000 × 6) + (6.08% of €2,000 × 12)] ÷ (€2,000 × 21) × 100 = [(€420) + (€1,459.20)] ÷ (€42,000) × 100 = 4.47%


     Putting it another way, private-sector workers, despite the headline-grabbing 6 per cent increase, will experience only a 4.47 per cent increase in their earnings for the proposed 21-month agreement to protect them from inflation etc.
     Using the same formula, a public-sector worker has a much lower increase in aggregated earnings for the same monthly salary of €2,000:

Public sector: [(3.5% of ME × 9) + (6.08% of ME × 1)] ÷ (ME × 21) × 100 [(3.5% of €2,000 × 9) + (6.08% of €2,000 × 1)] ÷ (€2,000 × 21) × 100 [(€630) + (€121.60)] ÷ (€42,000) × 100 = 1.79%


     If accepted, this deal is worth a 1.79 per cent increase in accumulated earnings for the public sector.
     That’s what you call real distribution of wealth!
[CC]

Home page  >  Publications  >  Socialist Voice  >  November 2008  >  What looks like 6 per cent, sounds like 6 per cent, but isn’t 6 per cent?
Baile  >  Foilseacháin  >  Socialist Voice  >  Samhain 2008  >  What looks like 6 per cent, sounds like 6 per cent, but isn’t 6 per cent?