Wage rates and competitiveness

Madam, — Many people are wondering where is has all gone for the Irish economy

Madam, — Many people are wondering where is has all gone for the Irish economy. Some talk of lost competitiveness and of public-sector pay bills that are out-of-kilter.

Thankfully, help is at hand for those readers who are unsure as to where they stand on such pertinent issues. They need look no further than the Irish Times Appointments pages of last Friday, January 30th.

Here they will find the HSE and the University of Limerick advertising joint appointments, as follows.

Professor of Psychiatry/Consultant Psychiatrist: salary from €272,860 to €295,000 p.a.

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Professor of Paediatrics/Consultant Paediatrician: Salary from €272,860 to €295,000 p.a.

Professor of Obstetrics and Gynaecology/Consultant Obstetrician Gynaecologist: salary from €265,650 to €285,000 p.a.

And if your perspective still isn’t clear, spare a thought for the 1,900 Dell workers — also, as it happens, Limerick-based — who are losing their jobs to low-cost locations, despite earning perhaps a tenth of the pay on offer for the above appointments.

Where, indeed, has it all gone wrong? – Yours, etc,

JACK McDONNELL,

Dal Riada,

Portmarnock,

Co Dublin.

Madam, – Paul Sweeney seems to suggest that those who advocate cuts in public-sector pay are somehow against eliminating tax breaks for businesses and farmers (Opinion Analysis, January 31st). However, I think most of those who have written on public-sector pay cuts would also agree with ending most of these subsidies, since there is rarely a strong economic case for them.

He also argues that our relatively low international pay ranking means that labour costs are not a major problem and that if we can boost productivity, we can raise wages and employment at the same time. Everyone is in favour of this, of course. However, boosting productivity growth is complex and is really a medium-term process, since there are few instantly effective policies.

However, with no change in productivity, we can still raise employment in the short term by accepting a wage cut. At a time of sharply rising unemployment, this sensible. In relation to the public sector, it is only fair that those on higher grades (including, of course, university professors) accept proportionately larger pay reductions. It is also important for the Government to ensure that cuts in public sector pay extend to those who effectively provide labour services to the public sector through procurement contracts (various self-employed professions).

I am not sure exactly what Paul Sweeney means by “conservative” economists, but I doubt whether the political preferences of academic economists can easily be inferred from their views on topics such as public-sector pay. In similar vein, the article suggests that a neoclassical approach to economics requires a belief in “efficient markets”. This is at odds with the evolution of the economics profession, with much of the past two decades devoted to using neo-classical economics to analyse the sources of market failures. – Yours, etc,

PHILIP LANE

Professor of International

Macroeconomics,

Trinity College,

Dublin 2.

Madam, – The article by Prof Richard Tol in your edition of January 28th was one of the first sensible, pragmatic and thought-provoking solutions to the current crisis yet proffered in this paper.

While some will rail emotionally against his point that “protecting the vulnerable would be nice, but protecting those that [sic] will get us out of this mess is paramount”, it is essentially a truism, and to deny it is naive or dishonest.

The current economic system requires people with money to spend it and invest it, thereby creating new jobs. Salary caps, higher taxes or witch-hunts against such people would satisfy a basic human desire to punish people perceived as responsible for the current crisis.

But it would achieve very little in a globalised economy as they will just take their money elsewhere (and with it jobs). – Yours, etc,

PETER BYRNE,

Weston Road,

Churchtown,

Dublin 14.

Madam, – Paul Sweeney argues that Irish workers are not overpaid, presenting as evidence a table that purports to show an international salary comparison. His argument is undermined by the three little letters “ppp” in the top right-hand corner of the table.

For those not versed in the black arts of misleading international comparisons, “ppp” stands for “purchasing power parity”, which means that the table is based not on pay rates, but on the ratio of pay rates to local prices. So what Mr Sweeney’s table is saying is not that Irish salaries are low, but rather that salaries in Ireland are high but prices are even higher.

We all know that Ireland is one of the most expensive countries in the world, so it’s clear that if the price element were stripped out of the data, Ireland would shoot up the table.

Mr. Sweeney also repeats the old canard about Ireland being a low-tax country, saying “we pay virtually the lowest income taxes in the developed world, have the lowest taxes on corporate profits and none on property”.

Firstly, the assertion that Ireland has no tax on property is extraordinary; has Mr. Sweeney never heard of stamp duty? In addition, he chooses to ignore VAT and VRT, to name just two cases where Irish taxes are among the highest in Europe. Secondly, a tax bias towards consumption rather than income seems perfectly rational to me.

Imposing punitive taxes on labour, where incentives to work are vital, rather than consumption, where no incentives are required, has always seemed to me a peculiar form of insanity. The advantages of taxes on consumption rather than labour were belatedly recognised by the German Government in 2006, when it raised VAT by three percentage points (although to a rate still way below ours) rather than increase income tax.

Finally, Paul Sweeney’s sweeping statements about tax comparisons need to be taken with a pinch of salt. Although he provides no detail at all, I understand his comparisons to relate to rates of tax, rather than tax collected. Such comparisons are extremely misleading, for the simple reason that they ignore tax concessions, tax-free allowances and tax write-offs.

In countries such as Germany and France, both income tax and corporation tax are subject to extensive deductions. Large corporations, in particular, pay virtually no corporation tax if they spend their profits in certain tax-efficient ways.

It would be most interesting if Paul Sweeney could give us an analysis of the actual tax take from, for example, corporation tax in Germany, compared to that in Ireland. He might be in for a few surprises. – Yours, etc,

Dr NORMAN STEWART,

Seapark,

Malahide,

Co Dublin.

Madam, – I am a fifth-year student in a South Dublin secondary school and I am working towards my Leaving Certificate. I do not study economics and I have only a basic knowledge of politics, but could somebody please explain to me how Brian Cowen – Taoiseach of a state with a population of around 4 million people – has a larger salary than Barack Obama, president of the United States of America and possibly the most powerful political figure in the world? – Yours, etc,

AMANDA GORDON,

The Rise,

Boden Park,

Dublin 16.