Jimmy Kelly of Unite has an article up on the Journal.ie at the moment that is worth paying attention to. He asks why the Central Bank of Ireland recently claimed that Irish labour costs are too high and that wage cuts of up to 10 per cent are needed to ‘restore competitiveness’.
The CBoI statement, however, provided absolutely no evidence as a basis for making the suggestion. On the contrary, as Jimmy thoroughly explains, there is plenty of evidence that Irish wages when compared to EU countries are well below average and with Greece is the only EU country where wages are falling.
UNITE has put together the true picture of Irish labour costs by using data from the EU Commission’s data agency, Eurostat. We examined the private sector (or what’s called the ‘Business Economy’). What does this picture look like?
Ireland ranks 10th out of the EU-15 countries, right at the average. Nine other countries have higher labour costs. However, this graph doesn’t tell the full story.
- When Irish labour costs are compared to those of EU-Core countries (excluding the poorer peripheral countries), Ireland falls 11 percent below average, ranking second to last.
- And when compared to economies with a similar structure as our own (small and open, heavily reliant on exports), Irish Ireland falls 18 percent below average, ranking last.
The below average wage costs are particularly marked in low-wage sectors.
“In the hospitality (hotels and restaurants) and wholesale & retail sector, Irish labour costs are seven to eight percent below the average of other EU-15 countries. When compared with EU-core countries this falls 16 to 18 percent below average. And when compared to similar small, open economies this falls a staggering 26 to 27 percent below average. That puts the propaganda in context.”
But there is another aspect that might surprise people who are forced to listen to this propaganda day in day out. So called competitiveness is not derived from labour costs, as many large wage economies are the most competitive, as the CBoI knows. In any case, the Irish economy has always been highly productive.
“Forfas looked into this issue recently and found that, even when adjusting for the accounting practices of multinational companies, Irish productivity was high by EU-15 standards.
In pre-recession 2007, Irish workers were still producing more per hour than their counterparts in the EU-15 – and that’s with a sizeable proportion of the economy involved in construction, a relatively low productivity sector. It is certainly true that Government policies deformed the economy through pump-priming the property boom – but Irish workers still went on working and producing at very high levels.”
This agenda to drive down wages does have an impact. By cutting wages in the economy the result is reduction in domestic demand which undermines the sectors that provide the largest employment.
“In short, the Central Bank’s proposal would drive down people’s living standards, increase the deficit and collapse domestic demand with all the impact that would have on unemployment and business closures. The Central Bank’s proposals would make a wasteland of the Irish economy.”
So why are the Central Bank of Ireland making this call and undermining the ability of the Irish economy to recover?
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