Guess who’s paying for the pay increase?

Dublin Bus workers have secured a 36 per cent increase in the amount recommended by the Labour Court. The lesson? Striking works — if your job matters.

We have semi-state workers, already the third highest paid bus drivers in the EU, both before and after tax, getting an 11.25 per cent increase over three years. This is far in excess of private sector wage claims, and will result in increasing wage demands in the near future by both public and private sector employees.

The wage claims are coming in large increments because of them have been deferred for eight or more years, and costs of staples like housing, healthcare, insurance, and childcare have risen markedly over that period.

Importantly, the Dublin Bus wage increases come with no concomitant productivity increases. This means Dublin Bus, which only saw operating surpluses of 0.5 per cent, 11.6 per cent and 10.2 per cent in the last three years, must fund the wage increases either from cost reductions, increases in passengers — ie more revenue – or increases in charges to bus users.

Dublin Bus has not been good at cutting its total costs, which were €218.9 million in 2008 and €217.9 million in 2015.

Dublin Bus has also not been good at holding onto its customers. It has seen passenger numbers fall from 143.5 million in 2008 to 122.4 million in 2015. (In all fairness, there was an economic crisis, so not all of the drop can be blamed on Dublin Bus.) However, the landscape is much more competitive in 2015 than it was in 2008, with private bus providers eating into many of the profitable routes, so it is hard to see how increased passenger numbers are going to do the trick.

Dublin Bus has been good at increasing fares, which went up 7 per cent in 2009, 3 per cent in 2011, 15 per cent in 2012, 8 per cent in 2013, 5 per cent in 2014, and 5 per cent in 2015.

So it does not strain credibility to think that, given its history, Dublin Bus will simply pass the wage increases it has handed the unions onto its customers in the form of increased charges, rubber stamped by the National Transport Authority.

Think about the average Dublin Bus customer. Do you think they’ve got the disposable income to cope with this? This represents a bailout of Dublin Bus workers by their customers, not an increase in efficiency or service quality which would normally justify wage increases.

Please don’t misunderstand me, or caricature what I’m saying as some right-wing ideologue hunting for service starvation and eventual privatisation of public bus provision. I’m not. As a taxpayer I want a well-resourced public bus system, and I’m happy to pay for that. And I do so through the public service obligation payment, currently €57.7 million. I’m against one group of workers sticking it to another group of workers, which may be what we’re seeing in the Dublin Bus case.

Expect other commercial semi-states to follow suit in the weeks to come.

Moving up a level, the economy in 2016 will grow robustly at around 4 per cent, and in 2017 is forecast to grow by 2.3 per cent by the Central Bank, which revised its forecasts downwards due to the likely impact of Brexit. Intuitively we know that the increase in value produced by the economy as the result of this growth has to either go to workers, or those who own the companies who employ the workers, who we’ll call capitalists for simplicity.

Without wage increases, and with productivity levels constant, increases in growth make capitalists better off — the ‘profit share’ grows.

In 2010, the wage share of the output of the Irish economy was 49.5 per cent. In 2016 it is 40.1 per cent. These are imputed measures, so take them with a grain of salt, but the trend is clear no matter what measure you use: workers are getting less than they previously did as a share of the output of the economy.

Workers are not stupid. They see the money coming in the door — they are the ones ringing up the tills after all — and they want a piece of it.

Cue industrial relations drama

The boys and girls at the Workplace Relations Commission better order in more coffee and biscuits, because they will be very busy indeed.

If private sector companies want to pay their workers more out of their increased earnings, I say rock on. Wage growth is a sign of a healthy economy, and should give us a boost in inflation, which has one of the most indebted household sectors in the world. Reducing the real cost of repaying a bit of that debt would be no bad thing.

The semi-state and public sectors are different animals. As a result of the Financial Emergency Measures in the Public Interest Act 2015, better known as Fempi, many public sector workers (including this one) had their wages reduced. The Lansdowne and latterly Haddington Road agreements are the framework for continued wage compression in the public sector. Expect public sector workers of all stripes to begin balloting for strike action in an effort to release the government’s purse strings, perhaps even threatening the Haddington framework.

Unions will be banking on the minority government’s relatively weak position in negotiations. The state spends about €56 billion per year. It takes in about €56 billion per year, and the fiscal space is €850 million. Growth isn’t exactly going to be spectacular in the years to come. So either taxes have to go up, or services have to be cut, to allow public sector workers get their pay restored as Fempi gets unwound.

Public sector workers enjoy security of tenure and very generous terms and conditions, not to mention truly awesome pensions. The provision of high-quality public services requires that they be paid for their efforts. But we should make every effort to price in these benefits to help understand the appropriate pay rates for the different grades of public sector worker.

I wrote that public sector unions are expecting the government to cave over increased pay demands. This ignores one crucial element: public expenditure minister Pascal Donohoe and his officials. Often unfairly caricatured as the SpongeBob SquarePants of Fine Gael, in reality Donohoe is sharp as a tack and will be very tough to deal with should the unions try to increase their workers’ wages at the taxpayers’ expense without offering ways to improve our public services. A pity Dublin Bus passengers don’t have a Pascal Donohoe.