High wage economy tops IBEC agenda for talks

Pay increases here have been 2½ times the euro-zone average since 2000, according to an analysis presented by IBEC as part of the pay talks.

Rising productivity has not compensated for this, the employers' body argues, and the consequence is a damaging loss of competitiveness.

Over recent years pay increases here have been far ahead of those countries with which we compete, with a cumulative increase in gross pay per head of 30.3 per cent in the four years 2000 to 2003 , compared to a euro area average of 11.6 per cent, according to IBEC (see accompanying table).

The analysis is contained in a previously unpublished document submitted by the employers' body to the opening session of the talks on the second phase pay terms for the Sustaining Progress agreement.

The talks are due to get under way in earnest shortly.

IBEC, led by director general Mr Turlough O'Sullivan, has been consulting its membership and "the message is crystal clear", the document says.

"Business leaders are very worried about cost competitiveness, caused by ever tightening margins and cost and currency pressures." The focus must be on protecting jobs, and pay increases for the next 18 months must reflect this, it says.

The group argues that the 7 per cent increase over the first 18 months of the national agreement matches the projected inflation level for the entire three years of the deal.

"Complacency about Ireland's capacity to resume solid economic growth is the single greatest challenge facing policymakers and pay negotiators alike," the document argues.

All efforts must be made to maintain the virtuous circle of maximising output and employment growth and danger signals are provided by our slip down global competitiveness rankings and a falling share of foreign direct investment.

Trade union leaders have emphasised the increase in productivity as a basis for seeking higher pay claims.

However, IBEC argues that even though Irish labour productivity tends to be overstated, even comparisons of unit labour costs with the main industrialised countries show that Ireland has become "more and more expensive since the beginning of the decade".

The cost of making a product in labour terms, in comparison to the OECD average, has moved back to the early 1990s levels in the space of three years, the document argues.

Labour productivity in industry in Ireland has risen by 5.1 per cent on average between 1985 and 2001, compared to an EU average of 2.6 per cent, IBEC argues.

The Irish figure is boosted, however, by the presence of a number of major IT and pharmaceutical multinationals and the high levels of capital investment in these firms.

Productivity levels in other parts of industry are low, it argues.

Data for many of the more traditional parts of industry show much more modest increases, with a 1.2 per cent rise in the food and drink sector, for example, coming in below the 1.5 per cent EU average. IBEC seeks to counter the unions' productivity argument by pointing to the unit labour wage costs.

"Ireland cannot continue to give itself pay increases ahead of those countries with which we trade," the document argues.

Doing so would further erode the competitive position of the economy "leading to more aggressive job losses and deteriorating public finances".

The analysis argues that Ireland is now a "high wage economy". EU data calculating nominal compensation per employee in the EU shows that average wage levels are above the rest of Europe, with the exception of the Netherlands, Denmark and France.

"Once income tax levels are taken into account, there is no doubt that net incomes in Ireland would move even further ahead of the EU average."

Data compiled by UBS stockbrokers and quoted in the document put further context on this, IBEC argues.

A primary school teacher with 10 years' experience has the 14th highest gross salary of 70 cities surveyed, the 11th highest net income and works the 15th lowest number of hours per week.

Meanwhile the minimum wage in Ireland for adult workers is the fifth highest of 24 countries surveyed in the EU and eastern Europe.

While IBEC has argued that the talks should concentrate on pay, its document does support the trade union demands in the area of tax.

The unions have complained strongly about the non-indexation of tax credits and the standard rate band in the last two budgets.

IBEC argues that "in order to preserve the pro-employment environment, there is a strong case for the next budget to maintain the incentive to work and to underpin Sustaining Progress through full indexation of tax bands and credits."