July 21st Morning: The Recession Diaries

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If you were to correct every misconception, every mistake, every misrepresentation – every piece of sloppy journalism regarding the economic facts that spews our every day in the Irish media, you’d gum up the worldwide net. For the sake of time and sanity, sometimes you let things slide. Until, that is, you come across the Sunday Tribune article, ‘There’s work out there – but you gotta fly’. Martin Frawley has some things to say about the labour market.

The boom of the last decade and the accompanying surge in wages and expectations has pushed Ireland so far up the league of wealthy nations, that the Irish will have to take a wage cut when relocating to all but a handful of the wealthiest nations in the world.


According to the most recent survey of gross income per head by the World Bank, Ireland is ranked sixth across the world, topped only by Luxembourg, Norway, Switzerland, Denmark and Iceland. But while we like to bask in the glory of joining the world’s super rich, Irish workers have priced themselves out of what is becoming an increasingly globalised jobs market.

Let’s take the last point first. Yes, we’re up there on the basis of GDP per head. But then you have to immediately take up to 17 per cent off the top (the amount that multi-nationals take out of the country). Then you have to subject these figures to Purchasing Parities to factor in living standards. Now, once you do that we’re still pretty high up (5th in the EU-15) but – and here’s the important factor – this is only an average. This little stat tells us something but not everything.

The EU Survey on Income and Living Conditions shows Irish inequality to be higher than the EU average – whether you use the Gini co-efficient or Income Distribution ratio. We are far, far more unequal than Denmark which Mr. Frawley refers to. Indeed, the survey shows that the top 10 per cent earn 10 times more in gross income than the lowest 10 per cent of the population.

But that’s just income. Bank of Ireland Private Banking states that the top 5 per cent own 40 per cent of all the wealth in the country. In addition, the top 1 per cent owns a third of all financial wealth. This obscene distribution of wealth sits uneasily beside the fact that nearly 30 per cent of people receive income below the near-poverty line (i.e. 70 per cent of median income).

So taking a gross number and dividing it up by the population doesn’t tell us anything about who gets how much, never mind who owns how much. In a word, this is plain sloppy.

But what about those ‘overpriced’ workers? The jury has come back on this a long time ago. The OECD’s Benefit and Wages has a comprehensive (and fun) database where you can compare average wages in the private sector. And guess what?

  • Irish wages are the fourth lowest in the EU-15
  • Among our peer group – the ten wealthiest EU-15 nations – we rank dead last

The EU AMECO database show Irish industrial wages well below the EU-15 average, while the US Bureau of Labor Statistics shows the same ranking for manufacturing wages. Not even IBEC claims that gross wages and overall labour costs are high in Ireland (and they’ll claim just about anything no matter how detached from the truth).

Oh, but I hear you say, what about net wages – wages after tax (this is a stat IBEC clings to). Well, let’s examine that even though Mr. Frawley doesn’t even consider this. Yes, net wages are high in Ireland because of our ultra low-tax regime. But, when you factor in those pesky PPPs we find that real net Irish wages are back down towards the bottom again. Here’s a little example:

The average Austrian private sector worker earns €6,000 more than an Irish worker. After tax, the Irish worker earns €900 more. But factor in living costs, and the Austrian worker earns €4,200 more per year. And here’s the kicker: the Austrian worker will have free health care, greater social protection, less poverty in society (and all the ills that brings to everyone), a public transport system to die for and subsidised arts and leisure.

All this information is readily available if you just take a couple of hours to pull it down. Most of it has appeared in Irish newspapers – even the one Mr. Frawley works for. And, please, don’t give me the Bangalore comparison. Compare like with like. If you want to go down that road then we’ll have to measure poverty by the amount of calories we consume daily (which is what the Indian authorities do, given the high risk of starvation in their country).

If there is an argument that Irish wages are too high given the current conditions and the capacity of our productive base – then let’s have that debate. But at least let’s start that debate with a truthful picture of the Irish economy and labour market in comparison with other relevant countries.

In these recessionary days, when we aren’t going out to restaurants as often, we’ll all have more time to do a little more research, a little more reading. It’ll help us come up with solutions to get us out of this recession and back to eating out more.

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