The Ways to Address Core Inequality - Market Inequality.

It was seen in the last blog on Market Inequality that there are a number of factors creating the problem. The first issue is that the distribution of national income between capital and labour is increasingly unequal. A second factor is that the tax and welfare system can alleviate market inequality. This is working well in Ireland. Thirdly, there is the issue of the market inequality between workers, with many on low pay in the marketplace while others enjoy substantial and some take excessive remuneration. Here we analyse the steps to reduce market inequality.

First Step: the Tax and welfare System reduces Inequality

The first remedy for the reduction of market inequality is the combination of the tax and welfare system in Ireland. We have seen that this works very well in reducing market inequality, but while effective, it is only a temporary solution because a recession quickly reduces welfare supports.

Second Step: Give Trade Unions the Right to organise workers to greatly reduce Market Inequality

The author has shown that how, over three decades, the share of national income in many countries going to labour has been declining. A key way to reduce inequality in the market is to give workers' unions the right to organise and strengthen labour's side of the social contract which has fallen for decades, as capital has grown.

This year we should see a major step being taken by the government in reversing this serious decline in labour's share of national income in Ireland. Before year end, the Government is compelled to enact the new EU Directive on Collective Bargaining. It should do this in a way which enables unions to effectively represent workers in all firms. Ireland is the only country in Europe where trade union collective bargaining is not legal (unless an employer agrees to allow it). We will return to this, the main driver of market inequality.

Third Step: How to Reduce Market Inequality between Workers.

The third factor in market inequality is the difference in incomes between those who make a lot of money and those who earn little.

The Low Paid

The adoption of the Minimum Wage has helped to address this problem at the bottom, but the adoption of the slightly higher Living Wage will greatly improve life for those on low pay. Taken together with union recognition - both steps would help low paid people improve their pay and importantly, their conditions. This will further reduce inequality between those of the top and the bottom.

The argument against paying better pay to those on low pay such as those in retail or so-called hospitality is that it would drive up prices eg your cup of coffee. But there are other ways of  helping those on low pay is by providing a good "social wage" through improved state services. This would include free GP care or a one-tier state health system without waiting lists. One of the most immediate things can be done for many low paid people with children is to provide free creches in Ireland. This should be a matter of priority. Directly built social housing for low earners worked well for many decades until the marketisation of housing from the 1980s.

The Very High Paid

Then, focusing on those with very high pay or earnings, the best way to address it is for the state to ensure that the taxation system is progressive. The income tax system is seen to be progressive in Ireland, yet it has a number of loopholes. The first is the number of tax expenditures/breaks which allow many high-paid people to reduce taxation either by turning their income into capital gains, (taxed at the lower rate), or investing in tax-exempt activities. Income tax audits of companies and persons works very well too.

The highest paid people are those who have captured senior executive positions in major international corporations. They are paid staggering sums. In many cases their pay has nothing whatsoever to do with their performance or abilities. They are paid because of their office and the directors are part of the elite club of corporate self-promoters who scratch each other's backs. More worker nominated directors like in Germany would help introduce reality to boardrooms[1].  This inequality is seen in the huge gap that has grown between CEO types and average workers' pay. In 2022, US CEOs were paid 344 times more than the typical worker, compared to just 21 times in 1965.

While the disparity in Europe is lower, this inequality in pay between top and bottom has spread here. Some Irish indigenous companies are now paying very high remuneration to bosses. CRH's CEO got over €12m in 2022 and the pay of Glanbia's CEO Anne Talbot was €7.5m and a €750,000 retention bonus to its financial officer is actually being contested by investors. Irish and EU catch-up with the worst of American corporate insider governance is growing.

A key to market inequality reduction: Trade Unions' Right to organise

As wages are one of the largest elements in a country's national income - the most effective way to reduce market inequality is to strengthen workers' power to boost their earnings. This is done by allowing them to bargain collectively through their trade unions. Unionised firms generally pay more and this shift would help address Ireland's high market inequality over time.

Historically, the trade union movement has also been responsible for core improvements in peoples' wellbeing. Trade unions fought and won the weekend, holidays, sick pay and much more. These massive improvements were hard-fought for by unions against the hostility of many employers and their parties internationally, over centuries.

Weaker unions will mean a reversal of these improvements in life for so many. As the numbers are working in Ireland, expands to 2.5 million, trade union density, or the proportion of workers represented by trade unions, has declined. This because of the hostility by employers and governments; combined with the reorganisation of work; technology (owned by capital); the decline of manufacturing; and unmanaged globalisation.

There is no problem with a government having "a pro-business policy" if it reduces unnecessary bureaucracy; ensures the support systems ie legal, insurance, banking etc are efficient and that infrastructure is good too. However when pro-business ideology becomes anti-worker, it should be opposed. This government's "pro-business" stance should now cease to be anti-union. It should revert to the progressive polices previous governments had when foreign firms first invested here.

IDA Ireland must again play its part in reducing Ireland's high market Inequality.

In the 1970s and 80s, when multinational firms from Europe and America were beginning to invest heavily in Ireland, the IDA, which had courted them, also informed the companies that the social partners, employers and trade unions were important in Ireland. Michael Killeen, the CEO of the IDA and his executives told the companies that they should recognise unions, and in particular suggested they recognise the ITGWU.

There was criticism by other unions that the ITGWU was singled out by the IDA as the preferred union for multinationals. Initially the agreements between the union and the new foreign investing company was not as good as that union wished for (I worked for ITGWU at the time), but over time, the Union (now SIPTU with the amalgamation with the next biggest union, the FWUI in 1990)  did manage to greatly improve the working conditions of those workers. These firms usually paid better than indigenous firms to all workers at that time. Most foreign firms including big pharma did recognise unions with no major issues. Not alone did Ireland not fall apart, it finally began to prosper.

Union Recognition must become a key Election Issue

The hostility to unions and the human right to collective bargaining was exposed in the Dail last year. In a response a Dail question last June 2023, the Minister responsible for the EU Directive on unions and collective bargaining, Simon Coveney, said that its implementation will "ensure the autonomy of the social partners" and "will not compel any party to engage in negotiations or conclude agreements." In short, unions' right to collective bargaining will not be legalised in Ireland. Mr Coveney has since resigned. There is a looming general election.

Market Inequality is Growing - not shrinking

Many larger firms can afford to pay more, being highly profitable. Some multinationals especially in Tech do not recognise unions' right to organise in their workplaces, believing they know what workers want and because often they pay their direct workers well. Their labour costs are relatively low, whilst they pay staggering sums to top executives. For example, CRH's new partner Westrock paid off its CEO with $33m and Michael O'Leary of Ryanair (now a unionised airline) is due a bonus of €100m.

Further the offensive corporate self-aggrandising practice of "Share Buybacks", boosting top remuneration by pushing up share prices artificially in the short run, is adding to inequality. Share buybacks should be made illegal. Further, high profits and high wages should also be taxed more effectively, particularly by ending most tax breaks. Also, if the many foreign firms here were to pay higher wages, then Ireland's national income would rise because a little less of the profits would be repatriated to be used for share buybacks and dividends, abroad. Tax revenue in Ireland on the higher aggregate wages in unionised workplaces would also rise in time - enabling higher public spending.

When US technology firms began to come into Ireland with their paternalistic "I know best attitude" they paid their core workers (only) well and told the IDA that their workers did not need unions because working for them was so fulfilling. Until then union recognition - the rights of workers to be represented by trade unions, had been government policy of all parties including Fianna Fail and Fine Gael.

Today, Just as equal pay for women was forced on a reluctant Irish government in 1977, so too the EU may force this government to inform foreign multinationals and other firms that they must also recognise the rights of workers to collectively organise and bargain. If this government tries to slide out of it, unions and citizens must stand up for equity and fairness. Today, the right to collective bargaining in all workplaces would reduce market inequality; improve the lives of many stressed and harassed workers; but will also improve public services with increased tax revenue on the higher aggregate national wage bill. Reducing market inequality by allowing unions' the right to collective bargaining should thus become an key election issue.

[1] Boeing’s largest labour union is seeking a board seat at the plane maker, saying “we have to save this company from itself” as quality control concerns draw scrutiny from customers, passengers and regulators. The company's bosses' greed led it to kill hundreds of passengers. Its CEO and Chair resigned at end March '24.

Posted in: Economics • Inequality

Paul Sweeney     @paulsweeneyman

Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.