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Friday, Feb 3rd 2012

The Truth About Irish Wages

Author: Michael Taft of Notes on the Front

Published: April 14th, 2008

Section: Articles, Income, Industrial Relations, Social Partnership

Discussion: One comment ↓

donncha_o_caoimh_postbox_smaller1.JPG

The new union UNITE (the merged ATGWU and AMICUS unions) has just published a report on Irish wages that is sure to prove controversial. It flatly contradicts the prevailing consensus that Irish wages are somehow ‘high’, that Irish wage growth is high relative to our EU trading partners, and that these ‘high’ wages are one of the root causes of our deteriorating competitiveness. In removing these arguments from the table, the trade union movement will be doing all of us a considerable favour, not just because it strengthens the arguments for wage increases, but also because it will focus our attention on the real reasons behind our economic troubles, reasons that have little to do with the employers’ claims.

The report is simplicity itself.  It merely looked up the facts. Using the international databases that compile cross-country comparisons, it reveals the following:

  • The OECD: In this measurement of the total private sector, Irish wages rank in the bottom half of the EU-15, lying 11th and falling nearly 11% behind the average EU wage.
  • EU AMECO: In this database, maintained by the EU’s Economic and Financial Affairs Directorate, Irish industrial wages lie 11th as well, nearly 7% behind the EU-15 average.
  • The US Bureau of Labor Statistics: The American database shows that Irish manufacturing wages are over 17% below the EU-15 average (and an incredible 42% below Norway’s average manufacturing wage).

Though these measurements use different methodologies, it is interesting that they tell the same story:  Irish wages are below the EU-15 average. But the report goes beneath these headline figures to unearth even more consensus-busting data on Irish wages.

First, the document, using the OECD measurement, shows that when Ireland is compared with its peer group-the wealthiest ten European countries, of which Ireland is one-our average wage falls a massive 25% behind the EU top-ten average. And when you factor in living costs, by applying purchasing power parities (the ‘how-much-bread-€1-buys-in-each-country’ measurement), Irish wages end up being not that much higher than in Spain. In the EU-15 table, they fall from a nominal 11% behind the average to a real fall of over 20%.

On just about any measurement you want to use, Irish private-sector employees are relatively low waged when compared with their EU counterparts. So where did this idea that Irish wages are somehow inhibiting our competitiveness come from? UNITE takes this issue head on. It shows how employers’ organisations and government ministers use a clever sleight-of-hand, mixing percentages and wage increases to first bewilder, then distort.

Yes, Irish wages have been increasing faster than most European wages in percentage terms, but that’s the catch: The percentages are high but the increases are working off a lower base. For instance, take two employees, one earning €10,000 and the other earning €20,000. If they both receive a €500 wage increase, it calculates as a 5% increase for the low earner and a 2.5% increase for the higher earner. The wage increase is the same but the percentages are different.

So, when an Irish worker receives a 28% wage increase over the last six years while a Belgian worker gets a 19% increase over that same period, we might jump to the conclusion that Irish wages are increasing at an ‘uncompetitive’ rate.  But look behind the numbers and we see that both workers received the same amount, about €1,500.  So the Irish employer is no worse off in terms of cost increases (at least with wages) than the Belgian employer. Indeed, the Irish employer still has the advantage of paying lower wages.

Irish employers enjoy not only the advantage of paying relatively low wages, however.  They also benefit from a generous (that is, low) social security-or PRSI-contribution regime. Irish employers pay one of the lowest rates in the EU. While the average EU employer pays approximately 20% social security levy, Irish employers pay half that, 10.2%.  Were our Employers’ PRSI levies pegged at the EU average, they would have to be doubled. It’s win-win for Irish employers.

So is there a causal link between wage levels and economic competitiveness? Employers and government ministers would like to convince us there is. However, that insistence on an iron law could backfire on them, because UNITE shows that in the EU-15 there are nine countries that rank higher than Ireland in the World Economic Summit’s Global Competitiveness Index, and all those countries have wage levels above those pertaining here. In fact, Denmark, which is the highest-ranked EU country, has an average wage some 32% higher than Ireland.  So, if there are those who want to suggest a causal link between wage levels and competitiveness, they will have to contend with the evidence, namely, that higher-wage economies are more competitive than lower-waged ones.

‘The Truth About Irish Wages’ constitutes a fundamental assault on the economic consensus that dominates debate today-that Irish workers are ‘pricing themselves out of the market’, that ‘high wages’ are undermining our competitiveness, and other such misinformed and unsubstantiated assertions. And it’s not as if these facts are somehow secret or only penetrable with an army of analysts. Anyone can go on to the OECD database or the EU AMECO website or quickly surf the US Bureau of Labor Statistics. It’s all there for enterprising journalists or commentators to take a few minutes to look up.

But UNITE’s report is not just about wages. It is about the fundamental premise of social partnership, that wage moderation can be compensated for by tax cuts. This premise is already being questioned by ICTU’s David Begg, and, with the Exchequer deficit nearly out of control, is probably not repeatable-not in today’s economic climate. So Irish workers are taking two hits: first, low wages, and second, the lack of a social wage which can only be paid out of high taxation. High taxation, in turn, can only be built on the framework of high wages. So we’re in a vicious cycle downwards.

And for pointing that out, we should be grateful to UNITE. Whatever about the emperor’s au naturel perambulations, it’s good to see a trade union commenting on the tattered apparel that Irish employees are forced to don.

The photo above was taken by Donncha O’Caoimh and is titled An Chead Bhailiu Eile.

Discussion

We welcome and encourage lively discussion from the public about articles on Irish Left Review. You can leave a comment using the form at the bottom of the page. Please read through the existing comments before posting your own.

  1. Comment by: D_D

    Apr 16th 2008 at 16:04

    Great Report. Great article.

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