Source: CSO

Employment in Irish industry fell by 21,300 from 232,600 to 211,300 employees between Q2 2008 and Q2 2009, despite the rise on pharmaceutical production in the US-owned sector. NCB Stockbrokers says there is evidence in the long-awaited Q2 earnings data (albeit covering just 18% of the private sector workforce) to suggest that the private sector is reducing labour costs, albeit in a different way than is commonly presumed.

In the industrial sector, hourly earnings including irregular bonuses rose 4.2% from €20.35 to €21.20 per hour in Q2 2009. Irregular earnings fell slightly from €0.96 per hour to €0.88 while earnings excluding irregular bonuses rose from €19.39 per hour in Q2 2008 to €20.32 in Q2 2009, a rise of 4.8%, according to the CSO.

Hourly earnings including irregular bonuses fell by 11.9% (€32.96 to €29.03 per hour) in the financial sector in the year to Q2 2009. This was mainly due to a fall of 69% in irregular earnings which fell from €5.90 per hour in Q2 2008 to €1.83 in Q2 2009. Hourly earnings excluding irregular bonuses rose from €27.06 to €27.20 per hour, a rise of 0.5%.

Average hourly earnings including irregular bonuses and payments rose from €30.88 to €31.01 over the year, a rise of 0.4%, for managers, professionals and associated professionals in the industrial sector. Earnings increased by 1.8% over the same period for clerical, sales and service employees (€20.41 to €20.78 per hour), while they rose from €16.53 to €17.14 per hour (up 3.7%) for the production, transport, craft and other manual workers. For hourly earnings excluding irregular bonuses, the annual rises were 2.4%, 2.3% and 3.4% respectively for the three occupational categories.

Weekly paid hours fall by 3.4% in the year in the industrial sector

The average weekly paid hours in industry decreased by 1.3 hours a week, or 3.4%, from 38.5 hours to 37.2 hours from Q2 2008 to Q2 2009. In the financial sector hours also fell, from 34 hours to 33.5 hours over the same period (a drop of 1.5%).

Weekly hours not worked (paid leave) were 4.5 hours in the industrial sector and 5.2 hours in the financial sector. This compares with paid leave of 4 hours per week in Q2 2008 in both industry and finance.

Weekly average overtime hours in Q2 2009 were 1.4 hours in the industrial sector compared with 0.3 hours in the financial sector, a fall of 0.5 and 0.2 hours respectively from the previous year.

In the industrial sector, average paid hours per week for managers, professionals and associated professionals rose very slightly from 38.2 to 38.3 hours in the year to Q2 2009. They fell by 2.2% to 35.2 hours for clerical, sales and service employees and fell by 4.8%, from 39.2 to 37.3 hours for production, transport, craft and manual workers.

In the financial sector, hours per week fell for managers, professionals and associated professionals from 34.9 in Q2 2008 to 34.5 hours in Q2 2009. They also fell slightly for clerical, sales and service employees from 32.9 to 32.5 over the same period. However average paid hours per week remained constant for production, transport, craft and manual workers at 34.5.

Weekly earnings fall by 13% in the financial sector in the year

Average weekly earnings in the financial sector (including irregular earnings) fell from €1,118.94 in Q2 2008 to €973.08 in Q2 2009, a drop of 13%. In the industrial sector, average weekly earnings rose slightly from €782.63 to €787.96 over the same period, a rise of 0.7%.

For managers, professionals and associated professionals in the industrial sector, average weekly earnings rose from €1,179.24 in Q2 2008 to €1,185.89 in Q2 2009 (up 0.6%), while for clerical, sales and service employees, earnings dropped from €734.27 per week to €730.56, a fall of 0.5%. Earnings went from €648.41 per week in Q2 2008 to €638.84 in Q2 2009 (a fall of 1.5%) for the production, transport, craft and other manual workers.

In the financial sector, average weekly earnings fell by 14.9% to €1,339.10 in Q2 2009 for managers, professionals and associated professionals. Earnings fell by 5.4% for clerical, sales and service employees’ earnings, while they rose by 7.3% over the same period for the production, transport, craft and other manual workers in the financial sector.

Excluding irregular earnings, there was a rise of 1.3%, from €746.52 to €755.90 per week, in the industrial sector while there was a fall of 1%, from €920.04 to €911.20 in the financial sector.

Source: CSO

Employment falls in the industrial sector by 21,300 in the year to Q2 2009

The number of persons employed in the industrial sector fell by 21,300 from 232,600 to 211,300 employees between Q2 2008 and Q2 2009. This decrease was primarily among the production, craft and manual workers, which fell by 17,700, while clerical, sales and service employees fell by 2,900 (37,500 to 34,600) in the year. Managers, professionals and associated professionals only fell by 600, from  52,400 to 51,800.

During the same period, employment in the financial sector fell by 1,600 from 86,000 to 84,400 employees. Managers, professionals and associated professionals fell by 2,100 to 41,000, while clerical, sales and service employees rose by 400 to 42,200.

Hourly labour costs fall by 9.5% in the financial sector

Between Q2 2008 and Q2 2009, average hourly labour costs decreased from €41.10 to €37.19 in the financial sector, a fall of 9.5%. Over the same period, other labour costs only rose by 2 cents from €8.14 per hour to €8.16.

In the industrial sector, other labour costs increased from €4.22 per hour to €5.49, a rise of 30%. This was partially due to an increase in redundancy costs, which rose from €0.52 per hour in Q2 2008 to €1.46 in Q2 2009. Overall, average labour costs rose from €24.57 to €26.69 in the industrial sector, an increase of 8.6%.

Brian Devine, economist at NCB stockbrokers commented;

Ireland is becoming more competitive but the adjustment is more subtle than deep cuts in basic pay

Ireland is becoming more competitive relative to its Euro area counterparts by virtue of the fact that core CPI is falling by approximately -1% y/y versus a Euro-area core inflation rate of +1.1% but Ireland needs to improve and maintain a competitive advantage given the frailty of domestic demand. There is evidence in the long-awaited Q2 earnings data (albeit covering just 18% of the private sector workforce) to suggest that the private sector is reducing labour costs, albeit in a different way than is commonly presumed. An important consideration in this regard is the concept of Unit Labour Costs (ULCs) which is discussed  below.

Ireland is becoming more competitive as ULCs fall. Increases in productivity (stemming from employee and hours cuts), sharp falls in irregular bonuses (as firms pare back margins) and steady hourly wages rather than deep cuts in basic hourly pay are the ways in which ULCs are falling in Industry and the Financial services sector.

The Q2 earnings data show that there was a large q/q% fall in hourly earnings in both Industry (-4.8%) and the Financial & Insurance sectors (-6.1% q/q). A large part of the fall was seasonal and related to irregular earnings declining. Average hourly earnings excluding irregular earnings were marginally down on a q/q% basis. On a y/y basis hourly earnings in Industry were still up +4.2% while they were down -11.6% in the Financial sector.

As of Q2 2009 there were 1,938,500 persons in employment in the State, with approximately 1,581,900 of those in employment in the private sector and 365,600 in employment in the public sector. For Q2 2009 we now have employment and earnings data for 254,000 public sector employees1 and 295,700 employees from Industry and the Financial Services. The 295,700 employees are largely in the private sector but the data does include 14,600 workers from the Electricity, Water Supply & Waste management sectors. Thus, we have earnings on 69% of the public sector employees and approximately 18% of private sector employees.

Unfortunately the public sector figures do not measure earnings on an hourly basis. To make today’s figures more comparable to the public sector figures we look at average weekly earnings excluding irregular earnings. Table 1 outlines average weekly earnings for Industry, Financial Services and the Public Sector with sub-components included in italics.

Source: NCB Stockbrokers

Examining the table one would hardly say that Ireland is becoming ultra competitive via wage deflation. There are a number of caveats to this statement and the conclusions which may be drawn from this table.

Firstly, hourly labour costs, in particular unit labour costs (ULCs), are the relevant metric when considering competiveness. ULCs measure the labour cost per unit of output produced. If output rises quicker than hourly labour costs then ULC fall. Total hourly labour costs (excluding redundancy payments) in the Financial sector fell -11.5% y/y in Q2. While we don’t have data on output specifically related to the Financial sector we know that “Other Services” fell -2.8% y/y in Q2. It would therefore be reasonable to assume that ULC have been reduced in the Financial sector

Hourly total labour costs (excluding redundancy payments) in Industry rose by 2.9% y/y in Q2. We know from the national accounts that Industry (excluding construction) output fell by -4.8% y/y. ULCs are based on the level of output per unit of input. The number of inputs, employees multiplied by hours worked, has fallen. In other words, we need to make adjustments to account for productivity gains. While we don’t have data on productivity, we know that Industry employment fell -9.2% y/y in Q2 versus an output fall of -4.8% implying that productivity improved. All-in-all it would suggest that ULCs in Industry are lower as the fall in the number of employees and hours worked outweighs the fall in output and rise in hourly labour costs.

Secondly, as stated earlier this data only refers to 18% of the private sector. A consistent, timely and comparable earnings data set for the Irish economy is badly needed and must be made a priority within the CSO.

Thirdly, without going into in detail again, the public sector wage bill must be reduced. While the public sector unions may point to the fact that weekly wages in Industry are up on a y/y basis, it has to be remembered that the y/y fall in employment in that private sector have become more competitive by becoming leaner (i.e. reducing workforce) and/or cutting pay in order to reduce unit labour costs. The inflated public sector pay bill while creating a fiscal drag is also hampering non-labour competitiveness by increasing the cost of various services provided to firms.