Centralised wage bargaining may still have a role to play but it will have to be modified to take account of the current economic climate, delegates at the Dublin Economic Workshop were told last night.
In its current form, social partnership wage bargaining was inappropriate for the economy's needs, according to Mr Conall MacCoille and Mr Danny McCoy of the Economic and Social Research Institute (ESRI). They were speaking in Kenmare at the opening of the annual workshop, which continues until tomorrow. "Within the last year, the centralised bargaining mechanism as currently configured has been exposed as the economy's policy environment and labour market have altered considerably," they said.
"The tightness of the labour market has meant that the terms of the agreement are largely non-binding in many areas of the economy, as employers compete for scarce labour resources. Those areas where national agreements are at least nominally binding, mainly in the public sector, are increasingly showing signs of industrial unrest sparked by dissatisfaction with perceived relativities in the share of the economic success."
They said it was arguable that the Irish economy would find centralised wage bargaining beneficial within EMU to dampen wages overshooting. "It does seem clear, however, that flexibility mechanisms in contrast to current rigid wage-setting will be required. The protracted renegotiation of the terms to the Programme for Prosperity and Fairness at the end of last year, with its requirement to use the Budget to prop it up, merely reinforced the critical need to update the model," they said.
Two flaws in the current model seemed apparent, they argued. "The first is the inability to reflect different ex-post outcomes for output in the pre-set wage terms. This has been particularly acute in the last two years when output growth in real terms has averaged nearly 11 per cent. The second flaw is the lack of any short-term demand management supports that the current wage bargaining structures offer domestic policymakers," they said. It was worthwhile considering modifications to the current system, they added.
"The time is opportune for this system of wage bargaining to be modified to take account of the new realities of a regional economy within a monetary union," they said.
"Our proposal to help smooth the necessary adjustment process is to incorporate an additional wage term into future national wage agreements. This additional wage term could reflect a greater set of contingencies based on ex-post outcomes. This is in contrast to the ex-ante nominal wage rigidities that are now in place backed by less-defined taxation cuts. This is not a solution for avoiding real economic adjustments but it can go some way towards smoothing the adjustment process."
