So, the Minister for Finance, after pocketing a sizeable increase in salary, is now lecturing Irish workers about the dangers to economic growth if they dare seek higher wages. Anymore of this carry on and Mr. Cowen will be in danger of becoming the Eric Cartman of Fianna Fail: ‘me-me-me’ and two fingers to everyone else. This is not to suggest our senior politicians and civil servants aren’t deserving of their increases. I just wish we had the same depth of analysis brought to bear on general Irish wage levels as the Review on Higher Remuneration in the Public Sector undertook for their remit. Is there any data that can start to shed even a little bit of light? Or are we condemned to suffer the harangues of Minister Cartman?
Okay, so the CSO’s Annual Services Inquiry is not going to top the best-sellers list. But where else will you discover that of the 84,000 service enterprises in the state, 57% don’t have e-mail (only 19% have a website); that 46% of all businesses are family-owned but these only make up 22% of total value-added; or that a whopping 84% of all businesses have a turnover of less than €1 million and only employ 23% of the services workforce.
Yes, its all there – 178 pages of tables and data – revealing the good, the bad and the ugly of the Irish services sector. The CSO’s report covers all the main service sectors (excluding the financial and public sectors) with nearly 84,000 enterprises employing over 655,000 people – in the wholesale and retail trades, business services, hotels and restaurants, transport and communications, and personal services. Let’s focus on wages (we’ll get back to the perennial Irish vs. foreign-owned sectors eventually). If the argument that increasing wages is hurting enterprise has any validity, we’re likely to find confirmation in the service sector where payroll costs are naturally higher than in industry. To increase wages is to increase prices, or so the mechanistic formula goes, and this leads to inflation, loss of competitiveness and all manner of economic ills.
As always, however, it helps to look at the real world. What’s happening there?
For every €1 sold in goods and services, wages take up 10 cents, hardly a burden. Of course, there are some sectors where wages take up a higher amount – notably in the hotel/restaurant and personal service sectors. However, the largest sector - wholesale/retail – makes up nearly 40% of all employment. Here, wages make up a very small proportion of turnover.
Of course, turnover doesn’t equal profit. Though we don’t have numbers for profit, we do have data for net value added, which corresponds very closely to profit (net value added is equal to turnover minus total purchases and wages). What has been happening since 2002?
Turnover and net value-added have greatly out-stripped wages (the former increased by 46% while the latter increased by a massive 73%) which suggests that if there are cost problems in the services sector, it is not ‘unsustainable wage increases’. Wages have declined in all sectors – as a proportion of turnover and net value-added (with the exception of the small personal services sector).
So what would happen if wages had remained at the same proportion of turnover and net value-added between 2002 and 2005?
How would this translate into a wage increase? If employees succes
sfully bargained for wage increases of between 10% and 21%, it would only return them to the 2002 situation (coincidentally, this wage increase would be consistent with the awards to cabinet ministers in the recent pay review).
The obsession with wages as an explanation for our ‘loss of competitiveness’ is just that – an obsession. It doesn’t hold up to any detailed analysis. Of course there are some sectors that are ‘wealthier’ than others, some sectors growing faster than others. Analysing the sub-sectors we would find that ‘restaurants’ produce little net value-added, while ‘telecommunications’ create an enormous sum. But the story in most of the sectors is one of profit rising and wages falling behind.
Let’s examine one sector – Real Estate, Renting and Business Activities. This sector contains 32,000 enterprises employing over 150,000 people.
Now, would someone please explain to me how wage increases are going to ‘undermine’ competitiveness in this sector? It may mean that employers, directors, owners and shareholders will make a little bit less – but there is a lot to go around. The only problem is that it is not reaching employees. If there is a ‘competitiveness’ problem it is primarily an entrepreneurial one, not a wages one. Lecturing workers about their wage levels avoids having to address the fundamental problems in our enterprise base.
We need profitable enterprises. We need higher wages. We need to translate sales into value-added. A prosperous economy needs all this. What we don’t need, however, is an analysis that is mechanistically obsessed with one input, one element, to the exclusion of other factors.
But I fear I may have been unfair to poor little Eric. Selfish, egotistical, opinionated: still, he did save his hometown South Park from a life-threatening plague of invading hippies.
Apart from lecturing, what has Minister Cowen done for us lately?
Comments