Notes on the Front

Conor McCabe is doing excellent work on the Census over at Dublin Opinion, undermining lazy analysis that passes into received wisdom, by just . . . well . . looking up the facts. What a welcomed revolutionary act. Another lazy debate is taking place over wages – as in, wage claims are undermining our competitiveness, our productivity, our living standards, our ability to sell our goods and services at knock-down prices in the international shopping mall. Well, let’s get revolutionary – or at least look up the facts. They are telling.

The EU Commission’s Directorate General for Economic and Financial Affairs maintains an excellent database, AMECO, covering among other things average wages in a number of sectors for all 27 EU countries. This gives us the opportunity to make broad comparisons with our EU partners. What does it tell us?

Manufacturing wages are in the front-line of our ‘competitiveness’ debate. Accepting that traded services are becoming more important in our export portfolio, it is still the case (and will be for a long time) that merchandise makes up the overwhelming majority of our export trade. And, though there is a futurology that almost celebrates the decline of manufacturing (let the low-waged countries do that for us – India, China – in a post-industrial world of service work), the OECD is so concerned that it has convened a high level commission to examine ways to reverse the decline in manufacturing in industrialised nations. With good reason – so many service jobs are directly dependent on a vibrant industrial base while the manufacturing sector everywhere is, or should be, the driver of economic and technological innovation.

So are wage demands driving our manufacturing sector into the ground? Not if the AMECO is to be believed.

Not only are Irish wages well below the more prosperous economies, they are below the EU-15 average. Manufacturing wages could increase by 8% on a once off basis and we would still only achieve average ranking.

Employers and right-wing (or, more generously, uninformed) commentators usually focus on comparative wage growth to justify their contention that uncompetitiveness can be largely reduced to wages. It is true that wages have grown faster in Ireland than the EU average. In 2005, Irish manufacturing wages were 82% of the EU average. In 2006, they were 92%. Some of this ‘closing of the gap’ is mere running-in-place, with Irish wages chasing inflation. But there is a more important consideration.

Namely, what is the point of economic growth if it’s not to increase wages and living standards; indeed to close the gap with historically wealthier economies? Is it being argued that people should work to achieve economic parity with other EU countries (GNP growth, productivity, unit labour costs, etc) in all respects except income? Wasn’t that the original premise for entering the EU (the old Common Market)? To catch up? Now that we are, workers are told to stop.

Even given this ‘catching-up’, the contention that wage increases are harming ‘competitiveness’ looks less convincing when we analyse wages as an input into manufacturing activity.

There are two noteworthy points about this data from the CSO Industrial Census:

• First, wages make up a very small input relative to turnover: 6% in all manufacturing sector, falling to 3% in our wealthiest sub-sector, the chemical and pharmaceutical sector.
• Second, relative wages fell during the three year period 2001-2004.

Certainly, on this basis, it’s hard to argue that wages are the main problem. This is not to argue that wages are unimportant in economic competitiveness. It’s just that they are one factor – and not necessarily the most important factor. Even the National Competitiveness Council is starting to admit that labour costs are not so much the issue. Rather, there are, at least, two other factors: state policy. And managerial competence.

This latter is not much commented on but considering that Ireland has one of the lowest corporate tax rates, the lowest payroll (PRSI) rates and, as we’ve seen, below average wage levels, we are entitled to ask the question – what is wrong with our native business sector? And can any state policy have any beneficial impact?

That is a question that thoughtful government elites have been asking for a long time. Sean Lemass concluded the Irish people couldn’t wait for the native business sector to get their act together and hoped that multi-nationals would take our reluctant business class to school. The jury is still out on that.

But we need to ask those questions. We need to do the hard work of finding where the real problems lie. We certainly need to confront those who distort the reality as a cover for their political agenda.

Above all, we need more little revolutions – that is, we need to look up the facts.