Job figures underline need for new pay pact

LOOKING at the jobs market, the case for national agreements between the social partners is an open and shut one. During the pay free-for-all for most of the 1980s, job numbers stagnated. Since the national agreements started in 1987, the picture has changed.

It isn't that long ago that a favourite topic of debate wherever economists gathered was Ireland's "jobless growth". For most of the 1980s the economy was recording respectable economic growth rates, but the level of total employment was stagnant. The result was predictable: rising unemployment and soaring emigration.

The contrast with the past couple of years could hardly be greater. The number of people at work rose by more than 100,000 between April, 1994, and April, 1996, representing one of the highest levels of jobs growth in the industrialised world. The total increase for the year to last April of 45,000 is almost as strong an underlying performance as the previous year's 57,000 increase, as the latter was boosted by a 10,000 rise in the number of people on Government jobs schemes.

So what is different now? Economic growth is certainly faster, averaging more than 7 per cent per annum over the past three years. But growth is also now translating into more jobs. While for many years the economy was driven by multinational exports - a portion of which were no more than accounting transactions - the economic uplift is now broadly based. As well as the boom in inward investment, retail sales are buoyant and many sectors of domestic industry are performing strongly.

There is no doubt that the figures boost the Government's case for negotiating a new national agreement. Employment has increased by over 130,000 during the term of the PCW, the Government pointed out last night. This is more than the cumulative increase in the past 20 years. While social consensus cannot take all the credit for the strong performance, the climate of stability and low inflation fostered by successive programmes has undoubtedly been a key factor behind the recent strong economic performance The competitiveness of Irish business on international markets has been fostered by the relatively low wage increases under the programme and by the climate of low inflation. The result has been a much higher level of investment, laying the ground for further growth in the years ahead. Other factors have contributed.

The 1993 devaluation gave a once-off boost to competitiveness, while the EU structural funds remain a major prop for the economy. But business likes stability and certainty and the national programmes have provided this vital ingredient.

Ironically, the figures also highlight one of the key problems a new national programme must address. Despite strong job-creation, the figures show that unemployment only fell by 1,000 last year. The reason is that new job opportunities are encouraging thousands of people back into the jobs market, particularly women who had been working at home.

BUT this means that a high level of unemployment remains - 190,000, according to the Labour Force Survey, and about 280,000 according to the Live Register. Much analysis has gone into examining which sets of figures show the "real" level of unemployment. The Government and most economists believe that the Labour Force Survey is the better measure. But, whatever these arguments, the implications for the talks are the same. Even record job-creation is having only a limited impact on the existing group of long-term unemployed who do not have the skills necessary to take up the new jobs.

Nor will the jobs figures end the key point of argument of the talks, which will be about the distribution of the fruits of growth. This will be fought on two fronts. One concerns pay, where employers and unions will clash on the appropriate level of pay increases and the extent to which employees should be able to get further rises when they work for profitable enterprises. The other front will involve the employers and unions trying to push the Government to give a specific commitment to a higher level of tax reductions than seen in recent years. The result, the Government will point out, would be a slower level of spending increases on providing services. The appropriate level of public-sector pay increases will also be a key factor.

The way to square the circle in the talks will be for the Government to commit to reasonable tax reductions in return for pay moderation. Provided economic growth remains buoyant, there should still be substantial resources available to increase spending in key areas. Its growth were to slacken, then the numbers might not add up, and this is something for which the plan will have to provide. Above all, the Minister for Finance, Mr Quinn, will want to ensure that borrowing remains within the limits set by the Maastricht Treaty. Business and unions will push the Government for specific commitments on tax reductions. It is important that these be given. At the moment, the Budget is drawn up along the following lines. First, the Ministers haggle over how much extra they can spend. Then the Minister for Finance of the day decides on the appropriate level of borrowing. Finally, the amount of money left over is dolled out in tax reductions. The result in recent years has been too rapid spending increases and not enough by way of tax cuts.

The Department of Finance may resist giving firm promises of tax cuts. But, if these do not form part of a new programme, then the unions are unlikely to sign up, as private sector workers in particular feel they have been short-changed under the previous agreement.

The new programme must also consider the competitive pressures which monetary union will bring. Industry has obviously been able to cope with the pound moving above parity with sterling. But, if Ireland enters monetary union and Britain stays out, a new competitive threat would be posed by a sterling devaluation.

All the focus has been on the new jobs being created. But a key factor of recent years has been that job losses have also been running at a low level, boosting the overall rise in employment. The new programme must also consider how to protect existing jobs as well as how to create new ones.