Previously, I discussed the assertions that rising housing costs were caused by over-paid construction workers. It wasn’t true but that never stops some commentators from trying to find blame – and finding it in workers’ pay packets. It’s been going on since the start of the crisis. And it still goes on.
The Irish Times reported that consumer prices in Ireland are still much higher than in most other EU countries:
‘Even after six years of austerity, consumer prices in Ireland are on average 18 per cent higher than the European Union norm, prompting renewed concern about the country’s competitiveness.’
Why should this still be the case? Costs associated with being an island on the periphery (transport and import costs?). Oligopolistic price-setting in key sectors? Alan McQuaid, economist with Merrion Stockbrokers, believes he has part of the answer:
‘The other key issue which these figures highlight is the underlying cost for retailers – eg rents, insurance and wage costs – are higher than elsewhere. You cannot look to have one of the highest minimum wages in Europe, and then not be surprised that prices are more expensive than the rest of the bloc.’
Oh, my, it comes back to those darned over-paid workers, this time in the in the retail sector where workers are undermining our competitiveness by getting an average weekly income of €512 a week (and this includes management salaries; weekly income for shop floor workers are bound to be much lower).
Let’s look at this claim about high wages in the retail sector and see how we compare with other countries, using the National Accounts here and here. We will use the Wholesale / Retail sector (there is little data at the retail sector only) but this sector as a whole would impact on costs for consumers. First up, employee compensation.
Ireland is below the mean average of other EU-15 countries (no data for Sweden) and well-below most other countries. We’re only higher than other peripheral countries and low-paid UK. This shouldn’t be surprising. Unite the Union examined employee compensation using the Eurostat Labour Cost Survey and found pretty much the same picture.
If employee compensation were to rise to the mean average of other countries, workers in this sector would be getting a 9 percent pay rise in 2012. More interesting, if we exclude the bail-out countries (Greece and Portugal), Irish wages in this sector would have to rise by 21 percent to reach the average of the other EU-15 countries.
But let’s take a look at the flip side of this wages equation; namely, profits. Wages may be low in a sector because profits are low and enterprises are struggling. Fortunately, the National Accounts provides data on profits, or net operating surplus and mixed income. Net operating surplus is the gross profits minus capital depreciation – a measure favoured by the Department of Finance. Mixed income refers to the profits of the self-employed.
How much profits are made for every hour worked by an employee?
The situation is reversed. Irish profits in the wholesale/retail sector are well above the average of most other EU-15 countries – approximately 31 percent above the mean average. When the bail-out countries are excluded, Irish profits in the wholesale/retail sector are still 19 percent above the mean average of the other EU countries.
We haven’t factored in currency and living costs; these are just nominal numbers. So let’s use one more measurement to get a better sense of the relationship between total profits in the sector and total wages.
In Ireland, profits make up 64 percent of wages in the sector. The average for other EU-15 countries is much lower – 45 percent. In short, Irish employers grab a much higher proportion of the value-added created than employers in most other EU-15 countries.
So what have we got?
- Employee compensation is lower than the average of other EU-15 countries
- Profits, however, are much higher than this European average – whether measured as profits per hour worked or profits as a percentage of personnel costs.
This is not intended to be a complete analysis of the sector – and certainly not after years of austerity which has seen many enterprises in this sector go to the wall, or cut prices to maintain volume. There’s no sense in pretending that all is well in the wholesale/retail sector.
But it gives a much different perspective than McQuaid offers. He would have been much closer to the mark if he had said the following:
‘The other key issue which these figures highlight is the underlying cost for retailers – eg rents, insurance and wage costs – are higher than elsewhere. You cannot look to have one of the highest
minimum wagesprofit levels in Europe, and then not be surprised that prices are more expensive than the rest of the bloc.’
But that never gets said. Funny that.