'Yes' says Paul Sweeney, Ictu chief economist, 'No' says Fergal O'Brien, Ibec chief economist
YES:THE GENIUS of business lies in its capacity to conflate its own narrow agenda with the wider interests of society. By making both appear synonymous we can be deceived into thinking the cause of business really is the cause of Ireland.
At the rotten heart of our artificial boom was a low-tax, low-regulation model of business that was promoted as if it were the contemporary equivalent of the 1916 Proclamation. There was no economic ill that could not be cured by tax breaks – from horses to hospitals – and no regulatory “burden” that could not be dismantled in the name of “national competitiveness”.
To question the assumptions at the core of this rotten model was to simultaneously commit heresy and economic treason. It appears as if we have learned nothing from that experience, because in the debate on the role of joint labour committees (JLCs) and registered employment agreements (REAs) we hear the same dishonest narrative.
Our economy has been driven to the brink by senior bankers and speculators, while a self-defeating austerity programme has cut 25 per cent from domestic demand over the last three years. This threatens to complete our collapse.
Yet, the business lobby says the road to national salvation lies in cutting the wages of people earning less than €10 per hour.
The argument is advanced that JLCs and REAs – which set wages and conditions for some 250,000 workers, the bulk on low pay – have become an obstacle to “national competitiveness” and therefore national recovery. Logically, the argument goes, their abolition or dramatic overhaul will open the floodgates to job creation and growth.
There are problems with this argument, not the least being that it is entirely free of evidence.
The memorandum of understanding with the IMF-EU took on board these concerns and directed an “independent review” of these wage-setting systems be conducted. The terms of reference directed the review to examine whether these systems “contribute to nominal wage rigidity . . . with potentially relevant effects on employment . . .”. Translation: does protecting wage rates for the lower paid impede job creation? If we remove that protection, will we get a jobs bonanza? That review (the Duffy/Walsh report) has now been published. Unfortunately for some business lobbyists, the answer that has come back is a clear, resounding and very unambiguous no.
The review accepted some 360 submissions, of which more than 90 per cent were from the business sector. They have had ample opportunity to make their case. The problem is that the case, when subjected to scrutiny, has been found wanting.
But determined not to let the facts stand in the way of a good, populist campaign, the business sector has continued undeterred. Ignoring the inconvenient truths springing from the Duffy/Walsh report, they have opted for the evidence-free approach and the fostering of popular myths.
It is not true to say the JLC/REA system requires double-time payment for Sundays. The overwhelming majority of those working on Sundays receive time and one third. For someone on €9 per hour, that is €12, before tax.
The minority of workers who get double time on Sundays are those who have already worked their 39-hour week, and are on overtime. Many Sunday workers are on flat rates, having been rostered over a seven-day week.
The requirement to pay a Sunday premium stems not from JLCs, but from the Organisation of Working Time Act (1997).
The payment of this small premium is society’s way of saying there is another price paid for Sunday working, in terms of family and community life. Remove that and the compulsion to work will inevitably extend across seven days for all sectors.
The weekend is abolished. This has major social implications.
Has there been any study done on how this might impact on the thousands of sports clubs relying on willing parents and volunteers with spare time at the weekends? Or on the wellbeing of children whose access to sport is to be curtailed as a result? Equally, cutting the pay of already low and modest wage earners may simply become a subsidy for employers and expose taxpayers to a bigger bill, as those workers are forced to fall back on social support schemes such as the Family Income Supplement.
To claim any changes to these systems will be ringfenced around new employees is a nonsense that is belied by the experience of the five women in Dublin’s Davenport Hotel who took strike action when their wages were cut following the reduction in the national minimum wage.
In targeting wages of JLC/REA workers, business lobbyists have confused cause and effect. The real problem for restaurants and others is that austerity has slashed demand.
It took organised working people over a century to win the right to weekend time off. That has been eroded, but not lost. Are we to sacrifice it now because hugely overpaid senior bankers could not contain their greed?
* Paul Sweeney is chief economist with the Irish Congress of Trade Unions
NO:TO GET people back to work and the economy back on track we must restore the competitive edge that Ireland lost in the boom years. Getting wage costs back into line is a difficult but essential part of this process.
It’s a process that many workers are perhaps already only too familiar with. All public sector workers and many in the private have accepted very significant pay cuts to protect their jobs. The cost of taking on new staff has also fallen by about 25 per cent.
This adjustment is an example of how an effective labour market should function when faced with an unemployment crisis. It enables businesses to stay afloat, recover, grow and ultimately take on more staff.
The existing system of joint labour committees (JLCs), which set minimum rates of pay above the national minimum wage in certain sectors, has left thousands of businesses unable to make this necessary adjustment. It should be abolished.
Despite one of the highest national minimum wages in Europe, sectors decimated by the economic crisis, such as retail and hospitality, are bound by extra wage rules, and are obliged to pay a 37 per cent average premium above minimum UK pay rates.
Those that backed increasing the rates during the period of unsustainable economic growth now say these rates should remain unchanged, despite the unprecedented challenges the country faces. Opponents of change cite a recent government-commissioned review to support their case. It concluded abolishing JLC rates was unlikely to have a “substantial” effect on employment.
Closer analysis of the review, however, shows this conclusion is not based on hard evidence and fails to take into account what is actually happening in Ireland. It is plucked from a deeply divided body of research on the subject.
The international studies cited have little relevance to the relationship between wages and employment in a small, open economy like Ireland, particularly in a time of high unemployment.
To understand how the system affects employment, it is important to differentiate between the effects it has on the various JLC-regulated sectors and on the wider economy.
Some of these sectors, such as retail, are tied to the domestic market and have suffered hugely because of the collapse in consumer demand. Greater wage flexibility will not solve the core problem of depressed consumer spending in the short-term. But it will help protect existing jobs, increase the number of hours worked and position businesses to rehire significantly when consumer demand improves.
In the sectors of the economy covered by JLCs that compete internationally, success is largely determined by the ability of Irish companies to win business in a highly competitive international marketplace. This is true of manufacturing and also of tourism. A more competitive hospitality sector is essential if we want to attract back the two million overseas visitors we have lost in recent years.
The largest input cost determining the price of hotels and restaurants is wages. Greater wage flexibility is a key part of reviving the sector’s fortunes.
The JLC system also has a very significant effect on businesses not regulated by it. It pushes up costs and prices generally, undermining competitiveness and costing jobs. We must now restore that competitiveness.
Much of the flawed economic analysis that has sought to dismiss the need for change has claimed it would result in lower consumer spending and weaker economic activity.
The premise of this argument is incorrect on two counts. Firstly, it assumes existing workers will see an immediate reduction in their earnings. This is not so.
Contracts of employment will remain intact and changes could only be made by agreement between workers and management in individual firms. This is what happens in the rest of the private sector, and those affected will have the same protections as all other workers.
Secondly, it fails to recognise the real reward of change is getting people back to work. If we can get the unemployment rate down through this and other needed adjustments, consumers will start to spend again and small businesses all over the country will see sales increase.
Getting rid of outdated and unnecessary employment regulation is not only essential in getting people back to work, it is part of the reform programme agreed with the EU and IMF. It is unthinkable that we would further erode our international credibility by not delivering on this key commitment.
Effective labour market policy must strike a balance between protecting existing workers and enabling businesses to hire as many new employees as is efficiently possible. The current regime fails on both counts. It threatens the viability of existing employment and is a barrier to job creation.
If Ireland succeeds in getting its cost base right, the jobs prize will be substantial. Now is not the time for Government to shirk the hard decisions.
* Fergal O'Brien is chief economist at the employers' organisation, Ibec