Economy

goodwillTony

13 Billion – Lucky for some?

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Cork is a pretty city on the river Lee in the south of Ireland where I lived for part of my childhood. Cupertino in the Silicon Valley is the HQ of Apple Inc. As an Irishman and former Silicon Valley software engineer (who is ironically typing this article on an Apple Mac) what is my problem? Doesn’t Apple provide 6,000 Irish jobs? Well it turns out Apple’s small investments in staffing and infrastructure in Ireland are dwarfed by the benefits Apple accrued from a special relationship with the Irish legal and taxation system which it has been milking for billions for years.

Calling out this fiscal black hole has caused a full-blown international political battle, the result of just one decision on one corporation which, as it turns out, was not operating in Cork. This Apple incident is just one such ‘discovery’ representing just the tip of the iceberg.  Since 1960 some Apple products are ‘made’ in Cork, or, to be more precise, Apple claim that value was added in Cork, what seems to be more important is that Cork also housed certain non-US Apple sales and distribution channels. The recent European commission decision has revealed that Apple’s profits from Cork operations were not recognized in Cork or anywhere on the planet for that matter. The commission cried foul. Apple products share much with that other Cork marvel of modern technology, the Titanic, which though built in Belfast, made its first (and last) trip from Cork just 100 years ago. Experience is a hard teacher. 

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Rebuilding Ireland: Long on Promise, Short on Detail

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In July, the government announced a new housing plan. Called Rebuilding Ireland, it is designed to tackle the current shortage in housing supply. It is an ambitious plan with praise for itself as radical and innovative. In truth, it is neither of these things. This plan was put together after the previous Housing Strategy document of 2014 but states that this is “having a positive impact, but not at the pace necessary to meet current pressures and pent-up demands.” It is not at all clear how Rebuilding Ireland will address this question of pace. The central problem with Rebuilding Ireland, however, is that it relies on the notion of ‘access to a home’. At best this is a poorly worded substitute for the right to a place to live. At worst, Rebuilding Ireland’s underlying vision relies on a flawed model of provision. We have to give the plan some time to produce something tangible but the way the plan is written does not inspire any confidence that the shortage in housing here will be addressed.

The plan is structured under five ‘pillars’. These are billed as “high level actions [which] will support a range of actions across the five key pillars of the Action Plan”. The plan seeks to address homelessness, accelerate social housing, build more homes, improve the rental sector and utilise existing housing. In time worn tradition, these have targets and deadlines for delivery across government departments and local authorities. A few days after its launch, a senior public servant spoke on the radio and bumbled his way through some of these targets testily insisting that there would be 47,000 social houses available by 2021. Considering that local authorities acquired about 1,000 units in 2015 and constructed just 75 in the same year, there are a number of problems with these targets. Chief among these is a reliance on the private rented market and Approved Housing Bodies. Relying on the private and voluntary sector to provide that many units in five years would require an immediate four fold increase in both building programmes and municipal acquisitions.  The plan makes it clear that this figure would be supported by €5.3 billion worth of investment, including accelerated Housing Assistance Payment delivery. As recent high profile cases have shown us, the HAP scheme moves people seeking housing off the local authority housing lists in return for subsidy payments to private landlords. These landlords can evict the tenant if they sell this property later, throwing people back on to some housing safety net which does not yet exist.

Rebuilding Ireland is neither innovative nor radical. One of its guiding principles is a reliance on private providers of housing. This means more money given to landlords, both individual and institutional / financial ones. Why fall back on a model of housing provision which currently does not support people in vulnerable housing situations and which, on other scales, has shown that it can sell property from under people’s feet? One of the reasons identified for an oversupply in the years to 2008 was a reliance on private developer-led speculative building. Developers relied on the continuation of credit to provide home loans to people needing a place to live. More worrying still, the plan promises that it will “work closely with the ESRI and the Housing Agency to improve understanding of conditions in housing markets around the country”. Such understandings are already available: from the ESRI, the Housing Agency as well as the National Economic and Social Council and a number of other bodies concerned with housing rights. Measuring supply and demand is easily done, right now.

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bins

Bin Charges: From Private Circus to Public Service

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The bin charges debacle is spiralling into chaos.  We have areas where two or three or four bin companies operate and other areas where companies are threatening to leave; escalating charges becoming an intolerable burden on many low-income households; considerable price variations between counties; off-shored private companies pursuing wage suppression to increase profits; considerable illegal dumping; charges for recycling which dis-incentivises a social good; and on and on.  This is not a waste management policy; it is a circus.

The Minister is set to introduce a freeze on bin charges which would at least give us some breathing space.   The following sets out an alternative outline to waste management.  This is not a hard proposal; others will come up with better ideas.  However, it is clear that the current situation is not sustainable – from an environmental, economic, and social perspective.

1.    A Public Service

Waste collection should be a public service.  In the late 19th century great strides in public health came from water, sewerage and waste collection services; all provided as a public good.  We should return to this principle.  This does not necessarily mean that waste collection would be provided directly by the local authority or some other public agency (but it could – see below).  However, rather than relying on market-forces to provide the service or set the charges, local authorities should re-assert active management and control of waste collection.

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RobertSchumanTime

Beyond Grexit & Brexit, Advocating an Irish and a British role in solving Europe’s mid-life crisis

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Robert Schuman was a former Vichy bureaucrat who became finance minister in post-war reunified France. He later became French foreign minister, then president of the European Movement, now official historians of European integration call him an “architect of the European Integration Project”. EU Public Relations officials celebrate Schuman’s declaration (made on the 9th of May 1950) as Europe’s birthday with photos of cupcake with a single European candle[sic.]. The European Parliament awarded Schuman the title: “Father of Europe”. Two years later he died, in 1963.

Europe, according to Schuman “will be built through concrete achievements which first create a de facto solidarity […] to secure in the shortest time the supply of coal and steel […] which have long been devoted to the manufacture of munitions of war”.  The 1951 Treaty of Paris formed the European Steel and Coal Community (ECSC) introducing an open market for military raw materials. The ECSC morphed into the Common Market, the Economic Community (EEC/EC) and now the European Union (EU) while adding the regional currency, The Euro; a currency managed in Frankfurt but spent in Dublin and Athens. When the global financial crisis hit Europe, again EU Federalism was mooted as a cure. Where is the debate in Ireland and in the UK on a federal EU? Are we really that insular?

Fast forward to 2016, almost a decade into the EU crisis, and the Anglo-Saxon press in Europe frames its “Europe” debate between two goalposts (‘Brexit’ and ‘Grexit’), as coined in the Financial Times by German journalist, Wolfgang Munchau.

Brexit is one possible result of Britain’s June 23rd referendum on a UK exit from the EU. The Brexit referendum follows mild-mannered arguments by UK Prime Minister on legislative flexibility (mainly financial safeguards for the City of London). David Cameron’s suggestions for sovereignty loopholes for the UK absenting them from EU financial controls rubbed the other European leaders up the wrong way. Perhaps this is not surprising as EU nations, the UK and Ireland included, are desperately trying to navigate the financial and political fallout of the European phase of the Great Recession.

Grexit revisits Summer 2015, when SYRIZA leaders capitulated to further austerity (and more Sovereign debt) while remaining in the Eurozone countermanding their own referendum decision to reject the third EU offer. Even the IMF recognizes this as a third phase of Extend and Pretend in Greece, kicking the stone down the road till 2016 (afterBrexit).

Globally, European integration, an open EU market, and the survival of the Euro, is debated in the Bank For International Settlements (BIS) and the G20 and the Council for Foreign Relations (CFR). Barack Obama conveyed his opinions to European leaders in his recent springtime visit. Neither Brexit nor Grexit are income neutral for hedge funds. Vulture funds would do well should Schaüble have his way forcing Greece out of the Euro and Brexit offers lucrative fluctuations in Sterling Foreign Exchange futures.

In the German Bundestag and in the other seats of EU power mum’s the word. Brussels and Frankfurt feign business as usual.

UK and Irish newspapers debate European Integration using national balance-sheet arguments on EU contributions and the taxation that pays for this. Taxation without representation is certainly an important issue, but this masks a deeper debate on supranationalism and European federalism. In Dublin’s Fleet Street, border controls and national corporate tax rates form part of a cautious debate on sustainable growth under conditions of high debt. Lucky for Ireland the term Irexit doesn’t quite roll off the tongue: “Ireland is not Greece” after all.

Instead of debating Federalism in Ireland a parochial debate focuses predominantly on national interests particularly its low corporate tax rates and the choice by US multinationals to offshore their EU headquarters locally. Ireland is English speaking; its trade and cultural ties are North Atlantic, a reflection of its history and its ongoing emigration; locally rebranded ‘diaspora’. None of this bodes well if Brexit passes. Ireland’s eastward facing Euroports export to Britain; there is significant cross-border trade with Northern Ireland. The governing coalition fears geographical isolation between Washington D.C. and (a possibly non-EU) Westminster. 

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ulsea2

Warning: Ultra-Low Spend Economy Ahead

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We are potentially heading down a dangerous stretch of road ahead –leading us into the Ultra-Low spend zone.  In this zone, investment declines and, so competitiveness and productivity; health and education services suffer; income supports falter adding fuel to the inequality engine.  A low-service, low-waged, low-productivity future awaits.

Of course, spending a lot of money doesn’t guarantee you optimal results.  But spending too little certainly won’t get you optimal results.  So how far behind are we falling?  Let’s compare public spending (excluding interest – this is called ‘primary’ expenditure) in the EU-15 countries.

I’ll use the method devised by Seamus Coffey who hangs out at Economic-Incentives.  He excluded elderly-related expenditure and then compared Ireland with the rest of Europe.  He did this because Ireland has an advantage here – we don’t have to spend as much on pensions and related expenditure because we have a smaller proportion of elderly.  In the EU-15, the over 65 cohort makes up 19 percent of the population; in Ireland, this cohort makes up 13 percent. 

2014 is the latest year we have data for old-age expenditure.  In the following, old-age expenditure is subtracted from total primary spending.  For instance, Ireland spent 37.2 percent of its adjusted GDP (adjusted per the Irish Fiscal Council’s hybrid-GDP estimate that factors in the accounting practices of multi-nationals).  It spent 4 percent on the elderly, leaving an expenditure level of 33.2 percent excluding elderly-related spending.  Figures for European categories are mean averages. 

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Ireland ranks below all the European averages.  What difference would it have made in 2014 in actual Euros and cents?

  • To reach the average of other EU-15 countries, we would have had to increase public spending by €6.5 billion
  • The next comparison is with other Northern and Central European economies (other NCEE). This is the EU-15 excluding the poorer Mediterranean countries like Greece and Portugal.   To reach this average, we would have had to spend an additional €9.6 billion.
  • The final comparison is with Other Small Open Economies, a category used by the IMF. These are economies with a small domestic market and a high reliance on exports.  Austria, Belgium, Denmark, Finland and Sweden are in this category.  This is arguably our peer group.  To reach this average we would have had to spend an additional €15.5 billion.

[Note:  some will say that defence spending should also be factored in as other European countries spend more than us.  This is true.  In the EU-15, defence spending makes up approximately 1.3 percent of GDP; it’s 0.4 percent in Ireland.  In any event, defence spending is a policy choice and, in my opinion, shouldn’t be excluded from comparisons.  But if you insist, knock off about €1.5 billion off the numbers above.]

In 2014, it could be argued that we are already a low-spend economy but as I wrote here, the situation could actually be worse.  I have reservations about Seamus’s method.  Excluding old age expenditure not only removes the demographic driven part of overall spending, it removes policy choices.  Most other EU-15 countries spend more on elderly per capita than we do.  Second, if we are to adjust for the elderly population, then we should also adjust for youth demographics.  In Ireland, under-20s make up 28 percent of the population, compared to 21 percent in the EU-15. 

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Time to Get Real

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The Stability Programme Update, the latest economic and fiscal projections, signals the start of the budgetary politics that will inform the next Government.  In particular, it shows the level of money available for the Government for spending increases and tax cuts.  Speaking in the Dail yesterday, the Finance Minister stated:

‘On foot of these changes, my Department currently estimates the net fiscal space to be somewhere in the region of €10 billion to €11 billion over the period 2017 to 2021.’

Remember all that stuff about the fiscal space during the election?  It was stated that there would be €8.6 billion available over the next five budgets.  This has been increased by approximately €2 billion due to changes in the complex calculations.   So, we have €10.5 billion.

 An extra €2 billion:  sound good?  Not really – not when you look at the detail.

Let’s compare two main budgetary projections that were presented in Budget 2016 – only a few months ago – and the current projections published in the Stability Programme Update:  investment and expenditure on public services (Government consumption).

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Spending on investment and public services has been revised downwards in the current projections.  The differences may seem small but it puts the increased €2 billion in ‘fiscal space’ the Minister referred to in perspective. 

For instance, in the budget last year the Government projected investment spending over the five years to be €25 billion.  They have revised this downwards to €23.5 billion – a cut of 6.2 percent.  We’d have to increase investment by €1.5 billion just to get back to the projections in the budget – and that was already one of the lowest levels of investment in the EU. 

Regarding expenditure on public services, over the five years the Government has revised this downwards by nearly €4 billion.  Get the picture?  Now let’s factor in inflation (using the GDP deflator – unfortunately, we don’t have an inflation projection for public services). 

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scambridge-protests-390x285

Turning Failure Into Hope

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The Sunday Business Post’s investigation into JobBridge was devastating.  The programme has been used to staff the HSE, Hewlett-Packard, public enterprises, supermarkets and universities.  A large number of interns report frustrations, especially as they have almost no workplace rights, while the investigation showed a scheme that grew out of control lacking robust monitoring and compliance mechanisms. 

It’s time JobBridge was closed down.  The youth section of Unite the Union has long campaign for its abolition; Impact has recently called for the programme to go.   It’s already being reduced.  The programme will be cut from €70 million last year to €51 million this year.  Cut the rest of it. 

And let’s use the money to create a real programme of work, targeted at people who are having a hard time in the market.  Long-term unemployment can be a dismal experience.  The longer you are out of work, the more difficult it can be to get back in:  your current skills may be become degraded, previous work routines are undermine, there can be mental health issues, you get stuck so far into a rut that it is difficult to pull yourself out.  Training programmes work best when the person is motivated and there is a belief that a job is possible at the other end.  Long-term unemployment is the ultimate de-motivating experience, leaving people with little hope.

In 2015, long-term unemployment (without a job for more than a year) averaged 114,000.  That amounts to 5.3 percent of the labour force.  By contrast, long-term unemployment in the EU-15 makes up 4.7 percent.  

When we turn to what can be called ‘chronic’ long-term unemployment – two years and longer – we find, on average, 83,000 stuck in this situation and, of this, 50,000 have been unemployed for four years or longer.

So let’s redirect the resources – approximately €85 million – from the JobBridge and Gateway programme) into a guaranteed real job programme.  In other words, the state should become an employer of last resort; when people cannot find work in the labour market, the state will provide that work.  What would such a programme look like?

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3_MT3

Ask the Right Questions

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The National Competitiveness Council (NCC) has released its latest Cost of Doing Business in Ireland.  It is always an interesting compilation of graphs, charts and statistics that compare Irish competitiveness against other countries.    The current release has been accompanied with a media bustle about ‘high-cost’ Ireland.  This, of course, has long been the case.  The NCC lists a number of culprits:  transport, utilities, credit and childcare.

And what would a ‘competitiveness’ review be without mentioning ‘labour costs’ (I think they mean ‘employee compensation’ which is not a cost but I’ll let that go for now).  Once again, the NCC has produced a misleading picture about labour cost trends. This has resulted in media reports referring to the ‘high cost’ of wages.  The NCC has even produced a graph to give the appearance that labour costs have been rising faster than the Eurozone average. I reproduce the graph below.

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You might think, from a first glance, that since 2010 Irish workers have been getting pay rises that exceed the Eurozone average.  The general picture is that, while wages fell between 2007 and 2010, since then they have been rising at a pretty swift pace.  Thus, we have to watch out; otherwise our wage levels will become ‘uncompetitive’.  Thus, we have to be more moderate, or ‘sustainable’.

The only problem with this picture is that it is wrong and misleading.  The NCC graph is based on the data from Eurostat’s Quarterly Labour cost index which can be accessed here (it would be helpful if the NCC actually sourced the data source and not just the agency that produced the data).  In this dataset, you can choose different types of measurement.  I’m assuming the NCC is using the ‘percentage change compared to same period in previous year’ not seasonally adjusted (it works in some respects). 

The measurement that the NCC uses tells you what it tells you but, at the same time, it can distort the picture.  Here is an example.  Let’s say that wages fall by 1 percent in year-on-year quarter.  Then the next quarter it falls by 0.5 percent.  Well, you’d say that wages are still falling though at a slower rate– and you’d be correct.  However, using way the NCC measures it, it would show wages rising since the ½ percent fall is less than a 1 percent.  This is the stuff of statistical battles.

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twt

Victory to all Retail Workers

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Workers at Tesco’s have voted overwhelmingly for industrial action to resist the proposed wage cuts that management is demanding.  The issue is now going to the Workplace Relation Commission.  This post is not about the details of the Tesco dispute (you can read about it here).  However, it is timely to take a step back and look at wages that not only Tesco but all retail workers earn.  And when you sneak that peak you will find that retail workers in Ireland are some of the poorest paid in the EU-15. 

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According to Eurostat (the baseline figures are from 2012, brought up to 2014 with the Labour Cost Index), Irish retail workers rank 12th in the EU-15.  And these wages are well behind European averages.

  • Irish retail workers would need a 20 percent increase to reach the EU-15 average.

But when we compare Ireland with our peer group, the comparison deteriorates dramatically.  One peer group are Northern and Central European economies (NCEE).  This is the EU-15 figure excluding the poorer Mediterranean countries (though it’s worth noting that Italian retail workers earn more than Irish).  In this comparison:

  • Irish retail workers would need a 35 percent increase in the hourly average wage.

A second peer group is other Small Open Economies (other SOE).  This is a comparison used by the IMF and it refers to economies with small domestic markets and a high reliance on exports, just like Ireland.   This category includes Austria, Belgium, Denmark, Finland and Sweden.  In this comparison:

  • Irish retail workers would need a 54 percent increase in the hourly average wage.

Some may object to this, claiming that if a company is not profitable, it cannot increase wages.  This is true enough.  But we are confronted with a problem:  the last year we have comparative enterprise data in the retail sector is 2012 – a bottom point in the retail business cycle with the economy still mired in a domestic demand sector.  Although profits per employed was about 15 percent below the EU-15, profits in the foreign-owned sector (such as Tesco) was the highest in the EU-15.  So even with the consumer economy at rock bottom, a substantial part of the retail sector was doing ok.

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beaker-512

The Experimenting Government

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We will soon have a government.  What kind will it be?  Time and a Programme for Government will tell.  But what we really need is an experimenting government; one that uses resources and creativity to experiment with different proposals.  There are many good ideas out there but it is hard to know how they might impact on the economy and society were they introduced in one go.  Commissions, green papers and studies can only tell you so much.  We should experiment – trialling ideas for a limited period in different contexts and sectors.  We can then assess the results to see if they are runners.  Here are a few examples.

1.    Shorter Working Week

I wrote about this here.  In Sweden a number of trials are being conducted to assess the impact of a shorter working week in terms of cost, productivity, firm or agency performance, customer satisfaction and the health and well-being of the employees.  Why not trial it here?  We could select public and private sector workplaces to run 18-24 month experiments in reducing the working day.  A study of productivity and all other elements would be done before and after the trial period and the results made public for study and debate.

2.    Basic Income

Basic Income – a guaranteed payment to everyone regardless of employment status – is attracting more attention and discussion.  Arguments centre around a new era of reduced formal work opportunities, the growing complexity of welfare states, strengthening workers’ bargaining power (if I have a living income to fall back on, I can walk away from the boss’s grief), etc.

But there are downsides:  the high cost of implementation, inflation, unknown impact on the labour market.  This is complicated by right-wing arguments that with Basic Income we can abolish the welfare state and minimum wages. 

It is unlikely that a Government would introduce Basic Income all at once, or across the board.  If it didn’t work out it would be very expensive to undo the policies and repair the damage.  However, some places are conducting experiments – for instance,Utrecht and other Dutch cities.  It will be limited to a certain cohort but the hope is to discover how it changes people’s behaviour and what the fiscal and bureaucratic impact would be.  So why don’t we do the same thing – we could model it on the Dutch experiments so we don’t have to re-invent the wheel.  It could be run out in urban and rural areas for a time-limited period with the effects to be studied afterwards.

3.    Labour-Managed Enterprises

There has been increased academic interest in the performance of labour-managed enterprises (workers’ cooperatives, employee-ownership and other models).  While extremely limited in Ireland, there are a considerable number operating in other countries – notably France, Spain and Italy – throughout the industrial and service sectors.  Proponents argue that such enterprises increase productivity and firm performance while generating higher investment and reduced wage inequality. 

Here is an opportunity to run a trial programme – through Enterprise Ireland, local enterprise boards or a new agency if that is seen a better fit.  It would provide funding and training, and work with firms that are closing down due to poor performance or owner-retirement as well as greenfield start-ups.  This experiment would take time – a firm may survive the first and even second year but could fold soon afterwards.  However, this could be an on-going process, with periodic reports and analysis.  This shouldn’t be too contentious – after all, it is about generating indigenous enterprises and putting people back to work.  What we might find is that labour-managed firms are a better route to those goals, with positive spill-over effects in the community.

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From Alpha to Omega Podcast #068 Knowing The Future

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This week I am delighted to welcome back Derick Varn to the show. After listening to the previous show about Cultural Marxism with Doug Lain, Derick sent me an email saying he’d like to come on the show and give his two cents. What followed was a wide ranging discussion on ideology, value theory, and the historical emergence of capitalism. We also discussed the possibility of a revolutionary movement based on a system without abstract value, Marx’s critique of the Gotha Program, and Star Trek as a Marxist Tract. And top of all that, the possible productivity of a communist state, game theory and alternative histories, and the Spanish revolution. You can find Derick’s blog here: https://symptomaticcommentary.wordpress.com/ You can find Derick’s and Amogh’s Podcast here:http://sympthomaticredness.libsyn.com/ The music on this episode was: ‘The Order of the Pharaonic Jesters’ by Sun Ra and his Arkestra ‘If Not For Money’ – The Wytches

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underpaid

Are We Getting a Fair Deal?

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With all the talk about industrial action and wage claims and wage offers and summer of discontent, etc. etc. etc. it is worth taking a step back and to look at the big picture.  Are Irish workers paid too much in comparison with other EU-15 countries?   This blog written by the Director of the Nevin Economic Research Institute, Dr. Tom Healy, looks at the adjusted wage share in the economy.  That’s one way of measuring wages – and it shows Ireland performing pretty badly in comparison. 

Here I am going to approach this issue by quantifying the proportion of the economy that goes on wages.  But whenever you go down this route you are faced with a big question.  Do we use GDP which is inflated by multi-national profits which are not generated here but are imported to take advantage of our corporate tax regime?  Do we use GNP even though this is also inadequate as it excludes actual productive activity?  Or do we use the Irish Fiscal Advisory Council’s hybrid-GDP which attempts to measure our actual economic or fiscal capacity?

Let’s take a cautious, conservative approach and use GNP.  In terms of EU comparisons this means using Gross National Income (GNI) which is essentially GNP including payments from the EU (CAP funding, etc.).  When we do this we find Irish workers, collectively, are paid a small percentage relative to workers in other EU countries.

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The EU Commission’s AMECO database estimates for 2016 finds that Irish employee compensation is near the bottom of the EU-15 table.  Employee compensation combines both wages and employer social insurance contributions; this is the standard measurement of wages and, as such, can be taken as a very close proxy to ‘labour costs’.  

Throughout the EU-15, wages make up 48 percent of GNI.  In Ireland compensation makes up only 40 percent – equal to Italy and ahead of lowly Greece (if we used GDP or the Fiscal Council’s hybrid-GDP, the percentage would be even lower).

What would happen if Irish wages rose to the average EU-15 level?

  • Total wages would rise by €15.4 billion, or 20 percent more than today.
  • That is the equivalent of €9,400 per Irish employee.

Of course, economies and wages are never so simple; therefore, you can’t run a slide-rule over gross numbers and extrapolate an optimal wage figure.  Much depends on the bargaining power of workers vis-à-vis employers, the position in the business cycle, the sectoral structure of the economy (high-tech?  medium-tech?), compositional effect, productivity levels, etc.  However, we can’t get away from the fact that Irish wages take up far less of Gross National Income than in almost all other EU-15 countries.

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LivingStandards3

Its All About Living Standards

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Following on from my recent blog about the squeezed middle which showed that middle income groups received less than the national share of income than the EU-15 average (due to high income groups taking more) it might be worth having a look at general living standards in comparison with other European countries. This is about living standards, not just income.

Eurostat measures living standards through actual individual consumption. Unlike private consumption (i.e. consumer spending) actual individual consumption

‘ . . . encompasses consumer goods and services purchased directly by households, as well as services provided by non-profit institutions and the government for individual consumption (e.g., health and education services).’

It, therefore, measures consumption not only of goods and services, but public services provided by the government. As Eurostat states:

‘Although GDP per capita is an important and widely used indicator of countries’ level of economic welfare, (actual individual) consumption per capita may be more useful for comparing the relative welfare of consumers across various countries.’

In short, actual individual consumption can be treated a proxy for living standards. So what is the relative welfare of consumers (i.e. everyone) across Europe? The following captures the relationship of real (after inflation) living standards in purchasing power parities between al l EU-15 countries and the EU-15 average.

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We can see that Ireland is in the bottom half of the table – 15 percent below the average. Our living standards are closer to Greece and Portugal than it is to the EU-15 average and the majority of countries.

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Crisis remains an investment crisis

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This article appeared originally on Socialist Economic Bulletin on Monday, March 7th

Prior to the recent G20 meeting leading international economic bodies such as the IMF and the OECD made tentative calls for increased investment, although this was often confused with increased spending. This is a belated or partial recognition of the real source of the crisis in the advanced industrialised countries. In terms of actual changes to policy it seems to have made no impact at the G20 whatsoever.

As the world economy is once more slowing and there are again a series of spurious explanations offered for this, it is worth revisiting the actual causes of the ongoing crisis which first became widely apparent in 2007. In this piece the advanced industrialised countries as a whole will be the reference point, using aggregate data for the OECD. But each individual economy within the OECD simply provides its own unique combination of these common factors, including Britain.

If one word can summarise the entire crisis in the advanced industrialised countries it is: Investment. The fall in Investment preceded the fall in GDP. It was also the largest component of the fall in GDP and it is the sole component which has failed to recover.

These points are illustrated in Fig.1 below, which shows real GDP, Final Consumption and Investment (Gross Fixed capital Formation, GFCF) for the OECD as a whole, using US$ Purchasing Power Parities.

Fig.1

Investment (GFCF) first fell in the OECD in 2008. Both GDP and Final Consumption Expenditure continued to increase and only fell for the first time in 2009. Falling Investment caused the crisis. On a full-year basis the total decline in Investment was 13% from its pre-recession high to the low-point of the recession in 2009. By comparison GDP fell by 3.5% and Consumption fell by 0.3%. The fall in Investment was far greater in proportional terms than GDP or Consumption.

Even though Investment is a far smaller proportion of GDP than Consumption in the OECD, its decline in monetary terms was far greater. From the pre-recession peak to the low-point of the recession Investment fell by US$1.3 trillion (in PPP terms). Consumption fell by US$ 0.03 trillion, or US$30bn, and barely constitutes a blip in the chart above. The fall in Investment was the largest component of the crisis.

Since the trough of the recession in 2009 real GDP has recovered by US$3.95 trillion. In 2014 GDP was US.55 trillion larger than its peak in 2008. Consumption is stronger. It has increased by US$2.17 trillion since 2009 and is now US$2.26 trillion above its pre-recession peak. By contrast Investment has recovered by only US.94 trillion from 2009 to 2014 and it remains US.37 trillion below its 2007 peak, or US$366 billion. The economic crisis in the OECD remains an investment crisis.

Consumption requires Investment
Economics should be the study and practise of achieving the greatest sustainable material well-being of the whole of society. For most of humanity this still revolves around the struggle for food, shelter and clothing. In the advanced industrialised countries, the required quality of those necessities has increased alongside the desire for good health services, education, welfare, access to recreation and leisure, and so on. Unfortunately, for material reasons a great deal of confusion surrounds that goal and the methods to achieve it. 

The (inverted Say’s Law) argument that increased Consumption will lead to increased Investment has evidently not materialised in the current crisis. As noted above, Consumption has increased but Investment has not. This was also the case in the Long Depression at the end of the 19th century as well as in the Great Depression of the 1930s. In both cases Investment continued to stagnate or fall despite a rise in Consumption. Currently we are in a phase of what Marx called the hoarding of capital. Keynes used the terms liquidity preference.

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