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News : Irish Economy Last Updated: Jan 23, 2015 - 8:26 AM


Low pay in expensive Ireland; Labour productivity rockets?
By Michael Hennigan, Finfacts founder and editor
Sep 28, 2014 - 4:20 PM

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In 2013 Irish prices for consumer goods and services were 18% above the European Union (EU) average despite Ireland being the only member country to have experienced a fall in prices in the period 2008-2012 while according to the OECD, the US and Ireland are among the countries with the  highest proportion of the workforce with low pay. Meanwhile, according to the Department of Finance there has been a huge "competitiveness boost through reduction in unit labour costs with a 20% relative improvement forecast against the euro area average" in 2008-2015.

Eurostat, the EU's statistics office, published data last March which showed that the average hourly labour costs in the whole economy (excluding agriculture and public administration) were estimated to be €23.7 in the EU-28 and €28.4 in the Eurozone (EA-17).

The Irish rate was €29 compared with Germany's €31, Sweden's €40 and the UK's rate of €21.

At current exchange rates, the Irish-UK differential is 28% rather than 38% last December.

Larry Murrin, chief executive of Dawn Farm Foods in Naas and president of Ibec, the business lobby group, has pointed to the Irish-UK differential.

“We employ people in the UK and here and there’s a significant cost difference in labour terms of 25 to 30%,” he said. “That’s never going to change. Nobody is talking about a reduction in the minimum pay rate. Ireland has to be smarter than that in how to deal with those competitive differences.”

Next month the UK minimum wage will rise to £6.50 or €8.33 compared with the Irish minimum wage of €8.65 but adjusted for cost of living the UK level will be higher.

In 2013 Irish prices for consumer goods and services were 18% above the European Union (EU) average despite Ireland being the only member country to have experienced a fall in prices in the period 2008-2012.

Irish restaurant and hotel costs were 28% above the EU average in 2013 despite a cut in the VAT rate to 9% in 2011 - - 35% of the workers are from overseas and pay is generally low.

Patrick Deshpande, an economist at the Public Policy think-tank in 2013, showed that accounting for different price levels, the minimum wage before the adjustment was 27% higher in Ireland than the United Kingdom. "However, once the adjustment is made for the cost of goods and services, the minimum wage differential is relatively lower, at 10%. Therefore, although the nominal values of the Minimum Wages show a significant difference, an individual earning the minimum Wage in Ireland is only approximately 10% wealthier than a comparative individual in the United Kingdom."

Deshpande also said that the median wage is the income earned by the middle earner of all individuals with half of those employed in a country earn more and half earn less. He said that the greater the value of this ratio, the closer the minimum wage is to this average measure. "This may act as an approximation for the distribution of income. Ireland has a ratio of approximately 0.48" - - at an average level compared with the UK and US.

According to the OECD, in the developed world using "low-paying" as jobs that earn less than two-thirds of a country's median income, on average, around 16% of jobs in OECD countries are considered low-paying.

The ratio in the US is 25%; Ireland is at 22% and the UK is at 21%.

Employees in Northern Ireland are among the lowest paid in the UK -- with some earning more than 80% less for doing exactly the same job as their peers elsewhere.

The German government has estimated that about 9% of the workforce will gain from the new minimum wage of €8.50 while about 5 to 6% of the workforces in the UK and Ireland are on the minimum wage.

However, what matters overall for people is how many hours they can work and in Ireland in June an estimated 130,000 in part-time work were seeking more hours.

There is also an unpleasant truth that Irish adult skills are not high.

The mean proficiency scores of the Irish working-age population in literacy and numeracy are significantly below the average of the other 22 developed OECD countries in the survey plus two others. Indeed, on most of the indicators of skills presented in OECD (2013), Ireland ranks among the bottom quintile of the countries surveyed.

John Martin former director for Employment, Labour and Social Affairs at OECD, has commented:

The ICT sector is very important to the Irish economy in terms of exports and productivity growth. Now a unique feature of PIAAC (Programme for the International Assessment of Adult Competencies is that it tested for proficiency in problem-solving in technology-rich environments - - which can be described in shorthand as 'ICT skills.' Once again, Irish adults performed poorly on these skills. More surprisingly, perhaps, so did younger Irish adults, especially at the highest proficiency level for ICT skills. It should now be a very high priority for research to determine why Irish adults performed so poorly on the PIAAC tests compared with their peers in other EU and OECD countries."

Wage levels are the result of an economy's structure  Germany has the world's highest hourly manufacturing cost at $46 in 2012 compared with the US rate of $36 and the UK rate of $31.

However, UK manufacturing employment fell by over 50% in 1990-2012 but the rise in high-paying financial services jobs did not offset this loss and the experience is that rises in services jobs are typically at lower pay and benefit levels.

In Ireland to attract FDI (foreign direct investment) jobs it has been the policy of governments to keep employer social security costs low but it is workers in the indigenous sector who typically have no occupational pensions and earn low pay.

  • Ireland has high professional services and medical costs as the FDI sector sets the costs for government and the indigenous sector;
  • The dysfunctional planning system makes land scarce in a country with a lot of it and in Dublin, FDI demand is pushing up commercial rents while house prices have risen by 25% in just a year;
  • The cost of a car in Ireland is about 30% above the Eurozone average;
  • It has been claimed that Ireland is the world's 4th most expensive location for petrol.
  • The National Competitiveness Council said in April that Ireland is the 5th and 6th most expensive location in the Eurozone for SMEs and large users of electricity respectively. Gas prices in the US are substantially lower than in the EU.  New business interest rates for non-financial corporations are higher in Ireland than in the Eurozone - - rates are 31% higher for loans up to €1m and are 27% higher for loans above €1m. In November 2013, interest rates in Ireland for revolving loans and overdrafts were 11.5% above the Eurozone average. Since the recession, the principle contributors to Irish inflation have been “Miscellaneous goods and services” which is driven by health insurance, “Transport”, “Alcohol and tobacco”, “Education” and “Health”.

The worker at the base of the economic pyramid is on low pay and typically has no occupational pension and can only expect basic redundancy if he or she lose their jobs.

They in effect pay the cost of the failure to remove the roadblocks to a competitive economy.

So when Ibec and its units such as the Small Firms Association suggest that the UK differential means no pay rises can be afforded for the low-paid, think that they are attacking the wrong target while the executives take their own occupational pensions for granted.

However, why not have a pay rise when the Department of Finance suggests that a hike in pay is due with the jump in unit labour costs: see page 14 here [pdf]?

As the saying goes, that's another story:

The idiot/ eejit's guide to distorted Irish national economic data

Other related links:

Declining regular work; Rising low-paid freelancing in Ireland & elsewhere - Part 1-4

Young and jobless? The solution isn’t always university

Q1 2011-Q2 2014: Irish employee jobs up 21,000; 130,000 part-timers seeking full-time work

Japan's Labour Market: Lifers, temps and banishment rooms

South Korea: A rich/ poor country - grim model for future world of irregular work?

German living standard highest in Europe; Irish, Italians, Spanish among Eurozone's poorest

IMF says 70% of new employment contracts in Italy are temporary

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