Economists diverge on pay deal merits

There is no guarantee that a successor to Partnership 2000 will be negotiated and failure will threaten major economic confidence, the economic director of the employers' group has warned.

At the Kenmare Economics Conference, held in Co Kerry at the weekend, Mr Brian Geoghegan of the Irish Business and Employers' Confederation also said employers would not agree to an open locally bargained element in the forthcoming negotiations for a new agreement.

"This has absolutely no attraction for employers; it would offer no certainty, little confidence in industrial relations peace and no bulwark against the real competitiveness threats detailed already . . . There is clearly a price above which central negotiation does not match the needs of competitiveness."

He also warned there was a house-price bubble and that it must be burst. He added that failure to negotiate a new agreement would result in a fall-off in business confidence, worse industrial relations climate, a fall-off in consumer confidence and jeopardising further tax concessions. "In many cases, short-term decisions about payment would mask strategic options resulting in loss of employment. Any new agreement would also have to encompass a number of other issues. These range from pricking the house-price bubble to social inclusiveness, childcare and competitiveness."

He added that the problems and threats were more easily understood in 1993 and even in 1996. But underpinning a relatively more successful economy through continued consensus was a more demanding exercise, he said.

The new agreement must address problems of social exclusion, labour market access, education and lifelong learning along with pay and tax and the housing market bubble and bottlenecks now threatening to choke growth.

According to Mr Geoghegan, the house-price bubble must be burst. But he warned that it was difficult to see how pain could be avoided.

Two leading economists argued, however, that putting a successor to Partnership 2000 in place was not necessarily worthwhile.

Mr Jim Power, chief economist at Bank of Ireland, and Mr David Daffy of the ESRI, one of the authors of the recent Medium-Term Review, argued that increasing wage settlements made it not worthwhile to negotiate a new agreement. While national agreements had a positive impact on the economy, it had been overstated, they said.

On top of that, as the ESRI pointed out last week, any shock would result in increasing unemployment. "In Ireland's case, in the event of a sharp fall in the value of sterling, wages would need to be flexible in a downward direction or unemployment would rise, " they say.

"On the face of it, it wouldn't appear worthwhile to put in place a successor to Partnership 2000, as market forces are now pushing many wage settlements outside of the realms of the current partnership agreement. A return to a system of localised bargaining where the market would decide the equilibrium wage level in different sectors would now appear most efficient."

According to Mr Power, trade union leaders want another agreement not only because their members might do better than they would outside an agreement, but also because it adds legitimacy to an organisation that is finding life difficult in the modern world.