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Workers are being urged to show pay restraint but, in all fairness, why should they?

Less of the wage-price spiral doom-mongering. Employers can’t hold off on pay rises with inflation above 8% and, as the IMF says, they could always accept lower profits

Employers and State officials preaching voluntary pay restraint these days are asking a lot of ordinary workers. Don’t go mad looking for pay rises, they say. You’ll make inflation even worse for us all.

But when you consider the profitability of some prominent businesses at the moment, and the expanding waistlines of some of the top cats in charge of boardrooms, it is getting harder to find objective retorts to workers and unions who ask: why should we be the ones to suck it all up?

Policymakers need to start coming up with better answers for workers than lumping responsibility on to their shoulders for a phenomenon — inflation — of which they are more victims than perpetrators. Real wages are falling fast and that cannot continue in an employment market characterised by labour shortages. Employers, of all people, must understand the dynamics of supply and demand given that they tend to use it often enough as an excuse for their own price-setting in the market. Restraint is often absent then.

Regardless of where one sits on the political spectrum, it seems fairly reasonable to predict that there will be trouble at the mill in many companies over the next six to 12 months unless employers, especially those whose finances are still robust, adopt an accommodative approach to wage demands.


Gita Gopinath, the Princeton-educated economist who is deputy director of the International Monetary Fund (IMF), is hardly your bog standard left-wing ideologue. She was lazily dismissed as a “neoliberal” by many in her homeland of India when she was appointed economic adviser to the Kerala regional government six years ago. If she lived here, you certainly wouldn’t expect to find her at a People Before Profit/Solidarity meeting.

So when Gopinath fired a harpoon missile last week clean through the hull of Great Ship Pay Restraint, then docked at Davos, it made many of us sit up and take notice. Speaking at the Swiss business gathering, she reminded the audience that inflation is correctly defined as a time when prices go up, not wages. Annual inflation in Ireland was running at 8.2 per cent in May, and the dynamics driving that were in train long before trade unions started making noises about wanting pay rises for their members.

You can’t walk across a room these days without tripping over another solemn warning from some pointy-head about the dangers of a “wage-price spiral” fuelling rampant inflation. But as a direct riposte, Gopinath uttered a truth that was powerful in its simplicity. She said it is absolutely possible to have a situation where wages go up and prices do not follow: if companies accept lower profits. This carried weight because she had no vested interest in saying it.

Why didn’t the Central Bank of Ireland make more of this point recently when it warned of the danger of “harmfully higher inflation” from rising wage demands? Will Andrew Bailey, the Bank of England governor, who earlier this year warned workers to “think and reflect” about asking for pay rises, be so quick to warn companies and shareholders to take the same approach to profits? Bailey, who is on close to £575,000 (€674,000) a year took a lot of stick in the British media for his comments. He deserved it.

Many businesses in hospitality and retail had their profits ravaged in the pandemic but they’ll be back on their feet this year. Some businesses were very profitable all the way through.

The price of energy is a main driver of inflation. ESB last year made record profits of €679 million, up 10 per cent. You can hardly blame trade unionists when they latch on to such anomalies to ask why, if companies can do so well, ordinary workers across the economy must be counselled to accept more pain.

It isn’t just big utilities and commodities companies. Pat McDonagh, the founder of fast-food chain Supermac’s, is rarely off the airwaves complaining about how difficult it is to find staff for his business. He once, rather unwisely, suggested the Pandemic Unemployment Payment (PUP) had made Irish workers lazy. Yet his company’s accounts for 2020 show that profits of almost €23 million dipped a tiny 6.5 per cent, propped up by millions of euro in State subsidies.

McDonagh isn’t singled out here over his company’s profits because he has done anything egregious, but rather because he is so vocal about the impact on his business of labour market conditions. There are many other companies in the consumer-facing sections of the Irish economy that are comfortably as profitable as his and which also aren’t shy about having a moan in private about how hard it is to find staff at reasonable pay rates.

The latest figures from suggest that wages are growing at less than half the rate of prices. The recruitment site’s data found wages, as captured by its research, were up 3.6 per cent in April. That indicates real wages are falling for many workers at rates barely seen since the days when pay cuts were de rigueur during the last financial crisis.

Consultants Korn Ferry this week released a report on the pay of directors at Irish listed companies. Many of them recorded maximum bonus payouts last year and remuneration has gone up “significantly” compared to five years ago. The average non-executive director — a part-time gig that some directors collect like stamps — was paid more than €107,000 last year. The average executive director of the Irish listed businesses received close to €1 million.

Some major corporate entities are pushing through price increases but also promising shareholders they will resume or increase dividends. It is increasingly difficult to preach pay restraint to workers when many captains of industry, and the investors for whom they work, remain so well paid.

A research note from the Central Bank this week highlighted that up to half of workers don’t think they will get a pay rise at all in the coming year, despite their expectation that inflation will average 10 per cent. And this is all happening at a time when the majority of employers are screaming out for more labour. Anybody who thinks this can or should be sustained needs to wake up. It is simply unfair.

There is little evidence so far of any wage-price spirals in Ireland or anywhere in Europe. But there is plenty of evidence that profitable employers will have to get real on pay.