Effects of Irish Ferries case will be positive

Economics: Most of us like straightforward explanations of economic phenomena. We haven't the time to burden ourselves with complexity. We choose relative ignorance because we reckon the costs of becoming well-informed outweigh the benefits. As a result, it is simplified interpretations of reality that engage us, and if the story contains an appeal to our prejudices, it will engage us all the more.

The coverage of the Irish Ferries affair is a case in point. The version of the story that has dominated media coverage is a very simple one - Irish workers being replaced by cheap foreign labour by a ruthless company - that harnesses at least two common prejudices: a distrust of big business and a preference for "our own" over others.

However, to reduce what's going on to a simple matter of Irish seamen being displaced by foreigners is akin to reducing a full-length feature film to a still photograph taken from a particular angle. To fully comprehend what's happened, we need to add at least a couple of extra dimensions, including the perspective of the overseas workers and the dynamic effects of the process.

Most of the agency seamen who are taking the jobs on the Irish Ferries vessels are from Latvia. Even before this week's settlement, they were set to earn a minimum of €17,300 per annum, according to the company, almost four-and-a-half times the average Latvian industrial wage of €3,900. From the viewpoint of a Latvian seaman, this looks much more like a step up the economic ladder than a "race to the bottom".

It has been argued that Latvian wage levels are irrelevant because the sailors will be living and working on Irish ships. However, when on board they will have their meals and accommodation provided free, and when not on board they will presumably take their shore leave at home in Riga or Ventspils or Liepaja with their travel costs met by the company. It is unlikely that they will be able to spend much of their (tax free) earnings when on board, so the greater part of their wages will be available to spend in Latvia itself, where the price level is about 50 per cent of what it is here.

What about the Irish seamen who are being replaced? They are to receive redundancy payments, averaging almost €60,000 and ranging up to €300,000-plus. With the economy operating at close to full employment, it would be surprising if most of them, especially the younger ones, do not find new jobs reasonably quickly. Others will use the opportunity and some portion of their redundancy payment to acquire qualifications that they would not otherwise have acquired. Others may set up their own small businesses. Sadly, some may never work again.

Beyond that, a signal will be transmitted to the current generation of young Irish people, that there is no future for them in relatively unskilled jobs in the maritime sector. Properly interpreted, that signal will help at the margin to raise the numbers who finish school and go on to third level education, providing a modest boost to the overall level of human capital in the economy and contributing to Ireland's ability to shift production up the value chain to activities where competitive advantage can be sustained. The loss of future generations of Irish-born seamen, bemoaned by some as the loss of a strategically critical stock of expertise, is about as regrettable as the loss of our car assembly industry or the passing of the blacksmith.

The Irish Ferries case provides an insight into the economic growth process. People from a much less developed country than ours have become available to do work that we have been doing, but at a much lower wage. That they can do so helps to improve their living standards. Irish workers lose their jobs, but many if not most of them will find new jobs and some will end up in better jobs. The incentive for Irish people who might otherwise choose a low-skill career track to raise their levels of educational attainment is increased. The long-run effect will be to raise living standards in Ireland too.

None of this is to deny that losing one's job can be a thoroughly unpleasant and dispiriting experience for the person concerned and for their family. Economic growth does not benefit everyone all the time. There are losers, even if they are mostly losers only in the short term, and it has ever been thus.

In this regard, it is worth remembering that even in the best days of the Celtic Tiger, substantial job losses occurred. In 1999, for example, a year that saw GDP rise by an unprecedented 11 per cent, more than 9,000 jobs (or 8 per cent of the total) were lost in IDA-supported companies alone. It's a fair bet that most of the people affected have long since been re-employed, and at higher wages. In 2000, total employment across the economy grew by 80,000 and since then it has increased by a further 260,000, and over this period average real earnings have continued to rise.

Nor is the analysis set out above to deny that the supports available for workers made redundant work smoothly and seamlessly. There is probably much that could be done to make it easier for those who lose their jobs to acquire new skills that will allow them to compete in the labour market from a position of strength. Likewise, if the signalling effect of events like Irish Ferries is to be fully acted on by young people who might otherwise settle for a low-skilled job, we need to do more to facilitate participation in senior cycle secondary and in third-level education.

The Irish Ferries case may well provide an object lesson in how not to conduct industrial relations and how not to set about winning the hearts and minds of the public. But its enduring significance is in what it tells us about the process of economic growth . . . provided our minds are open to that.

Jim O'Leary currently lectures in economics at NUI-Maynooth. He can be contacted at jim.oleary@nuim.ie