TASC did something quite unusual, even revolutionary: they looked up the facts. With all the unsubstantiated claims about labour costs, ‘Myths of the Irish Crisis: Wages and Competitiveness’ is truly fresh air in a stale debate. Here I reproduce the data from Eurostat which TASC uses to show that Irish labour costs in low-paid sectors are below European norms. Indeed, labour costs could be up to -9 percent below EU averages - despite the desultory mantras from employers. Let’s first look at the Wholesale/Retail sector.
Ireland ranks 10th – well behind European averages. Our labour costs are -5.5 percent below the average of other EU-15 countries – and well behind league-leader Denmark which has an unemployment rate of 6 percent. But when the poorer Mediterranean countries are excluded (such as lowly Portugal), Ireland falls to -16.1 percent behind the average of the EU core countries.
However, when Eurostat factors in living costs (though PPPs), we find Ireland falling to nearly -11 percent behind the EU-15 average and nearly -18 percent behind the EU core countries.
In the Hospitality sector – hotels and restaurants – we find a similar pattern.
Irish labour costs fall -6 percent behind the EU-15 average and -15.4 percent behind the average of EU core countries. And when living costs are factored in, Irish labour costs fall -11 percent behind the EU-15 average and -16 percent behind the EU core countries.
What’s notable is that these figures come from 2008 – the last year of rising income. If we were ‘uncompetitive’, it should have been in this year. We can get a sense of what has been happening to labour costs by turning to Eurostat’s labour cost index which, for most countries, bring us up to 2010. What do we find?
Wholesale / Retail sector: Irish labour costs increased by 1.3 percent; the EU-15 average increased by 4.9 percent
Hospitality sector: Irish labour costs fell by -0.2 percent; the EU average increased by 3.4 percent
So, in 2008 Irish labour costs in the low-paid sector trailed European averages. Since then, the gap has widened. While this is provisional (as we don’t have labour cost increases for France, Sweden and Denmark) we could find that labour costs in both sectors are -9 percent below EU-15 averages in 2010.
Those are the unvarnished facts. Next time you hear a spokesperson from IBEC, the RAI, ISME and the SFA going on about ‘the highest labour costs’ in the EU – you’ll know.
They are simply refusing to tell the Irish public the truth.
I’m usually not partial to terms like ‘class war’ but readers might be able to provide an alternative description to what is happening.
First, we find that AIB employees were informed over the airwaves that there would be 2,000 redundancies plus with no guarantee that it will all be voluntary. A spokesperson from SIPTU - which represents porters, caterers and security staff at the bank – put it this way:
‘Our members in security and catering never received any bonuses during the Celtic Tiger period, and they work long and unsociable hours. It is immoral that these hardworking people should now be sacrificed for the sins of senior management.’
But isn’t that the way – management makes mistakes and the cleaners get fired.
Then the Restaurant Association of Ireland steps up their attacks on low-paid workers. Never letting truth get into their argument, they contend that hospitality workers are over-over-paid. This is just the latest in a long-running campaigning against low-paid workers’ living standards, especially hospitality workers. Yet, profits in the upmarket hotels are on the up and up, according to the industry monitor TRI Hospitality Consulting:
‘Dublin hotels shrugged-off the economic woes of Ireland during February and recorded an astonishing growth in profits of more than 40%.’
And its not just upmarket Dublin hotels – even Supermac’s is getting in on the act, taking in over €6 million in profit, an annual jump of 18 percent. Geez, no better time to hammer down workers’ wages, I guess.
And then there are those pesky public sector workers. The new Government, taking up where the old Government left off, pursues a policy which they know will realise few savings but do considerable damage to the economy - namely, cutting the public sector payroll. Then, when they actually realise few savings while the economy continues to haemorrhage, they blame . . . yes, you guessed it . . . the workers.
Of course, all of this could be seen as a necessary ‘correction’ in the labour market – but that’s just a euphemism.
Employee: ‘You mean you’re cutting my wages?’
Employer: ‘I’d prefer to call it a wage-correction.’
Employee: ’15 percent?’
Employer: ‘There’s a lot of correctin’ to be done’.
Question: who pocketed that excess productivity? This is the extra compensation to capital – or the corporate owning class. And given that corporate tax has been falling historically, the compensation to owners just gets better and better.
We can observe a long-time decline of wages (including the social wage) as a proportion of GDP. There are any number of contributory factors but central has been the collapse of the post-war Keynesian settlement and the rise of neo-liberalism – a rise which doesn’t look like fading away any time soon. What is of particular note is how wages have collapsed in Ireland and lags EU norms.
If we lose sight of the key facts – that inequality is growing; that the corporate sector, having hit a bit of a bump in the recession is reasserting itself big time; that the institutions that once promoted workers’ interests are in retreat – then we will fail to understand what is happening in Ireland.
We will fail to understand the linkage between what is happening to bank employees, low-paid workers and public sector workers.
There is one argument in the current bank bail-out debate that is getting tiresome. It goes like this:
‘If we do something the ECB doesn’t like they will cut off loans to our banks and the ATMs will dry up by the morning. Therefore, we have no alternative but to do what we are doing.’
This broken-ATM argument comes from the ‘frighten the children’ stable. It is used to counter any alternative to the current Fianna Fail/Fine Gael/Labour strategy. We can’t do a or x or z because the ECB will cut us adrift. This argument limits options and debate, requiring nothing more than assertion. Ultimately, it justifies political inertia.
At its core, this broken-ATM argument requires us to assume that the ECB is irrational. We are told the ECB won’t tolerate anything that would result in cutting even one strand of bondholder hair for fear of the contagion it would cause throughout European finance. Then, in the next breath we are told that if we do alternative x, then the ECB will cut off our bank funding.
Imagine what would happen if they did this? Of course, our banks would meltdown but there would be more losers than just us. The first loser would be the ECB itself. It would have to write off billions it loaned to the banks (yes, those assets are backed up by ‘assets’ – what chance those assets would compensate for the losses). So the ECB loans billions to our banks and then pulls out the rug ensuring that it can never be repaid. Sound rational?
The second set of losers would be those financial institutions – primarily German, French and British banks – exposed to Irish banks. They would realise massive losses which their governments would have to make good. I’m not sure that Nicholas and Angela would be impressed with the ECB’s precipitous action.
Another set of losers, and this is all intertwined, is the impact on the banking systems of the peripheral countries. As Karl Whelan points out, the markets would start gambling on which country would be next for an ECB cut-off – sending their financial systems in a tail-spin, multiplying the impact of the Irish bust.
The ECB’s actions to date are predicated on preventing contagion, or even the hint of contagion, from seeping out from Ireland into the wider Eurozone. Yet, if the ECB withdrew their funding it would be contagion squared and then squared again. And it wouldn’t even take the ECB to go this far. Even the hint that they might do this would be enough to start a chain-reaction. Which is probably why no ECB official as ever averted to this possibility. This is why the markets have not factored in this extreme possibility – because it is so far-fetched (even for the most delusional and irrational investor) that it is not part of the risk-landscape.
Except: in the Irish debate. Only here does the threat of ECB withdrawal get thrown around with abandon. Lucky for us international markets don’t pay much heed to our political debates. What might help get the debate back to some semblance of reality would be for a TD to ask the Minister for Finance under what conditions the ECB told the government that they would withdraw liquidity funding for Irish banks. The answer would be instructive.
The broken ATM argument rests on a highly irrational assumption. This is not to say that the new Irish government can tell the ECB to get stuffed. This line of action also has unforseeable risks - and risk is the one thing we are trying to remove.
But between these two extremes there is a range of options and alternative strategies. The Irish room for manoeuvre is limited; but it is not non-existent. It will take hard work, creative work, a bit of risk, a lot of calculation and, most of all, an open and honest dialogue with the public; but there are options. In other words, it will take politics and the art of the possible.
So the next time you hear a new Government Minister, taking over from Fianna Fail, using the broken-ATM argument – just remember: this is not a description of reality. But it may be an admission that the coalition parties didn’t have a strategy entering into Government (beyond election rhetoric); have not had time to come up with their own; are just tinkering with the old Government’s strategy; and are afraid of where a new strategy might take them if it starts from the wholly reasonable and rational proposition that the state shall not be obliged to honour private debt.
Sometimes it is safer and easier to frighten the children.