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May 14, 2009

Comments

Mack

Hi Michael,

I'm confused by these stats. The CSO puts average industrial earnings in Ireland for June 2007 about 30% lower AMECO's figures for the whole of 2007 (there is a similar gap between the CSO's annual figures for 2006 and AMECO's figures) . Wikipedia puts the US median household income for 2006 10% lower than AMECO's average industrial wage for 2007.

http://www.cso.ie/releasespublications/documents/earnings/current/indearn.pdf

http://www.cso.ie/statistics/indearnings.htm

http://en.wikipedia.org/wiki/Median_household_income

Is there a definitive set of figures somewhere? Or a reason for the divergence with the CSO defined averages?

Gerard O'Neill

Not sure I'd call myself a real devaluationist Michael: more of a deflation fatalist perhaps. The problem with comparing industrial wage levels is that: a) most private sector Irish employees don't work in industry, and b) their costs are therefore a higher share of operating costs than in your manufacturing example.

From numerous conversations with people running services businesses (like myself), there is clearly downward pressure on wages and salaries. Only a minority of employers have cut them as such, reducing overtime, temporary staff and even permanent staff instead.

But as today's CPI data shows, deflation has a firm grip on our economy and it is affecting the revenues of many businesses that are cutting prices (hence the falling CPI). When staff are the largest cost that you have, and you have to cut prices to keep customers, then it is only a matter of time before you have to cut staff costs.

The way I see it, businesses will cut staff numbers if they think the recession is going to get worse, but they will instead cut wages if they think it is near the bottom and they'll get through if they are prudent. Neither is exactly an indicator of economic health, but the latter is probably better for employees (in the short to medium run) than the former.

The public sector are, of course, out sourcing the recession to the private sector (I've had previously signed contracts with the public sector effectively torn up and told to take a lower price or else). The same for most other suppliers to the public sector.

The medium term outcome will be a widening gap between private sector and public sector pay - though the inevitable collapse in income tax revenues will make even this government consider temporary salary reductions (or more pension levies).

Where we stack up against wage levels in other countries in this scenario is, alas, entirely academic.

Conor McCabe

Interesting point Gerard, about the public sector outsourcing the recession. Tell me, did they outsource the boom as well? Just that, if they didn't, I can understand why you would say that the public sector is outsourcing the recession - i.e. passing on the cuts to the private sector. However, if they were handing out contracts during the boom, and at boom prices, well, that's the rough and tumble, no?

The second point is that you mentioned how the average industrial wage is untypical of Irish service-based wages - how true! Over 30% of all Irish workers earn less than 15,000 a year.

Finally, can I just ask what is the nature of the service that you provide to the Public Sector. There are many different types of services. Is it cleaning, catering, short-term contract administration?

It's just, in order to get a handle on how typical your experience is, it would be helpful to know what it is you provide.

Michael Taft

Mack

I think you may have been looking at the old series of CSO industrial earnings. A problem with the old series, which causes confusion, is that the CSO headlined wages for production workers as the average industrial wage. For instance, in June 2007 – the production workers wage was €32,604. That would account for the 30% gap. However, the average wage for all employees in the industrial sector (including clerical and managerial) was 36,660. This statistic, however, was buried in the tables.

The CSO has changed the series into the now Earnings and Labour Costs series. The old series only published regular pay. The new series adds a number of other elements – notably, irregular earnings (such as irregular bonuses). The two series have slightly different methodologies – the old one used a series of weightings from their survey, whereas the new series covers all enterprises over 20 employees and an extrapolation below that number. The new series gives a more accurate picture. However it has one drawback as the old series gave valuable information on the sub-categories (e.g. Food, Chemical, Transport equipment, printing, etc.). The new series doesn’t.

Looking at the new series, it states that the average industrial wage (which also includes management) for 4th quarter 2007 is €40,509 (among production workers only, the average wage is 33,888). AMECO would also use the average of all workers. Also, nominal compensation in AMECO may well include employers and or employees PRSI. In addition, different databases sometimes ‘merge’ the different methodologies from national sources. For instance, Ireland surveys all companies with more than 20 enterprises. Other countries might use different methodologies.

That’s why it is tricky using figures from database and comparing it with another. But the CSO, under the new series, is close to AMECO database – especially if PRSI is included.

As to the Wikipedia figure – median is not the same as average. Median is the wage level at which 50% of employees are above and 50% are below. For instance, in the CSO’s National Employment Survey 2006, it shows average (or mean) manufacturing wage to be €17.58 per hour but the median wage is €15.01. In other words, despite the average, 50% of all manufacturing workers earned less than €15.01 per hour. Averages can be misleading so the median wage is a helpful measurement (and this CSO measurement uses a different methodology than the one in the Earnings and Labour Cost survey).

Earnings and Labour Cost Survey 1st quarter 2008: http://www.cso.ie/releasespublications/documents/earnings/2007/earnlabcosts_q42007.pdf

National Employment Survey: 2006 http://www.cso.ie/releasespublications/documents/earnings/nes2006/nesoct2006.pdf

Hope this has helped.

Thanks for the comment, Gerard. And don’t be too fatalistic – you know the old Gramsci saying: pessimism of the intellect, optimism of the will. Though I take your points, I don’t think the comparisons are academic when the argument is whether we are internationally wage competitive. Yes, in other sectors, labour makes up a high element of costs – but the German Board figures related to labour costs in the private sector, not just industrial wages which was the AMECO figure.

One of the problems we have is the lack of data regarding what is happening in the market sector. Instead, we have to rely on anecdotal evidence – such as yourself and your own experience of other workplaces; surveys, etc. The Industrial Relation News posts the companies that have paid (and continue to pay) the first tranche of the wage agreement but this is not a survey. I know that in many branches in private sector unions, workers would not have come out on the national day of action as their companies were wage-compliant. So the situation is rather cloudy.

No one can dispute the fact of deflation but, again, we have to have some perspective. While the headline CPI rate is -3.5%, when mortgates are excluded, the rate improves to -0.3 and when all housing is excluded (including rents) inflation is flat-lining, not deflating. However, that businesses are being badly affected is beyond doubt.

Don’t forget, Gerard, the biggest supporters of prosperous, thriving, efficient and expanding enterprises – both public and private – are workers and trade unionists. It’s only in such enterprises can good wages, benefits and working conditions emerge. That’s why I have argued (as well as ICTU) for pro-active policies to protect our enterprise base. For instance, payroll subsidies based on the Dutch and German model, to top up short-time wages and prevent redundancies. Also, I can’t understand the Government’s reluctance to help out the indigenous export companies with a temporary sterling stabilisation fund. No doubt this can’t be a long-term solution – but so much of our indigenous exports go into the UK and any currency-related adjustment should be stretched out into the medium and long-term. If companies like these go to the wall, it will be very difficult to create new ones in the years to come.

I’m not going to get into the public sector-private sector wage gig here as it is not the point of this post. But there will be plenty of opportunities to chew over this one. Besides, with such pro-enterprise policies as the two I pointed out (there’s much, much more where those came from – sustaining demand through state-led job creation, social protection increases, enhancing disposable incomes, social infrastructure investment, etc.) we might yet turn you into a Keynesian, Gerard.

Mack

Thanks Michael, that's a very useful clarification of the data.

I'm still surprised by the US figure, as the multi-income household median (perhaps this assumption is wrong) is still well below the single income average. Presumably down to either huge high-end salaries heavily skewing the average, or lower-paid jobs being excluded from the latter calculation, or the fact the former came from wikipedia!

Pavement Trauma

I'd say the differential depend to a large degree on the nature of the average industrial work in each country.

Does the average industrial worker in Germany work at a more skilled level than the average Irish industrial worker? Conceivably, yes.

The output per unit labour would ideally be the basis of comparison but this is subject to a lot of distortion due to the influence of transfer pricing and similar practices.

So the problem may not be that we have become relatively expensive in absolute terms but have become expensive for the type of work we're doing.

rdlp715

Are their any statistics out there on the productivity to wages ratio of workers?

I know I have seen them in places for example cheap Chinese workers are less productive than Germans(who isn't?) hence the Chinese economy has lots of room to find efficiencies and grow.

This would put the argument over wages to bed once and for all now that it has been clarified we are not actually oh so well paid.

In fact, if we are/were so well paid in a low tax economy then why was there such a grab for credit, overdrafts, loans that we now cant pay back? Supposedly more disposable income than anyone in the world AND insanely high personal debts? Makes no sense. The rightwing deflationist argument is trying to have its cake and eat it too.

Michael Taft

Pavement Trauma - that's a good point. I have tried to track down, through the EU Klems database, the comparative high tech employment. Ireland ranks well but I suspect that this doesn't tell the full story. In Germany, companies, in addition to employing high-tech labour will also include comprehensive R&D, innovation, etc. departments - something we lack as we are part of a global chain in our foreign-owned modern manufacturing sector. So such comparisons can only get us so far without more detailed data. However, I would point out that labour cost figures relate to all the private sector - even those sectors which wouldn't rely in high-tech productivity (retail, hotels/restuarants, etc.).


rdlp715 - the problem with productivity comparisons is, as Pavement Trauma rightly points out, are skewered by the operations of multi-nationals. Indeed, when Forfas did a productivity comparison, they didn't even bother assessing Irish productivity in our modern sectors - they just took US productivity as a surrogate. It's quite a situation where our economic base is incapable of being concretely assessed - welcome to the world of tax-laundering corporate rates. However, your larger point is correct. Wages here are, on average, lower than in other advanced industrial countries. And though the Right point to high levels of take-home pay, what they omit is the much higher cost of living which Irish workers face. In addition, they fail to factor in the fact that Irish workers have to seek out in the private market many services that workers in other countries consumer through social provision (e.g. GP fees, prescription medicine, pre-primary education, childcare, pensions, etc). Once these numbers are crunched, its no wonder that many households had to resort to credit to obtain many goods and services.

Mack

Michael -

What's the best way to get the cost living down? If companies can't give pay rises now, our standard of living could still rise if prices fell. Is it possible to manage this without causing (or adding to) a deflationary death spiral?

Caelen

I'm not sure if wage deflation is the way to become more competitive, however I am certain that we either need to become a lot more productive or cut cost a lot.

Last year I went out and got pricing for some tele-marketing work that we didn't want to do internally. Prices from Irish call centers came in at about €35 an hour and prices from US call centers at $25. We did our due diligence and quality was on a par and US call volumes were slightly higher. At the time the euro was stronger than it is now and the US worked out at under 50% of the Irish price.

I have no idea what factors caused Ireland to be uncompetitive in this instance. However, in my mind either we need to decide that we don't want the call center industry or it has to become competitive with the US.

Does this mean we have to cut our wages? I don't think so. However, a lot of other costs will have to be reduced and our productivity needs to increase.

No matter how we go about doing it, it doesn't feel like it is going to be easy.

CMK

This is an interesting debate and, in particular, the above comments raises a few issues.

My point here is not related to costs or how to cut, or whether to cut etc.

But rather with the notion of improving productivity without compromising social justice and fairness. I.e without slashing wages, benefits, good working conditions etc. I, perhaps foolishly, believe that it is possible to have competitive businesses, productive entreprises and a fairer and more just society. Indeed, the former are only possible and sustainable when predicated on the latter. Scandanavian countries could be the target, but it's possible to go even better.

But one pre-requisite to achieving this, in my mind, is a more self-critical, reflective, socially conscious business class. One which realises that the only road to personal enrichment is through building businesses within the context of just society. Business, at all levels, in this state gets a total pass on this and similiar aspects of economic life. In the morass of mindless 'pro-business' commentary that we live in this issue will be overlooked. But it's as important as any other issue in creating a more sustainable economic future.

Michael Taft

Mack, it is possible that some people's incomes may rise as prices fall - but this will not be across the board. For instance, the main driver in Ireland's deflation is falling mortgage costs. Those on low incomes are not going to benefit all that much.
We could, however, target some of the costs that directly affect businesses: the government's policy of artificially inflating electricity prices; the high cost of telecommunications under Eircom's control; the cost of commercial rents. These are not easy (accept the electricity prices which only requires a change of policy). A more forensic analysis of business costs are required on a sector-by-sector basis - such as that done by Forfas when analysing the cost of retail enterprises. That would be a start in addressing this vexed question.

Caelen, different sectors and different competitors will throw up a varied range of policy problems and prescriptions. Take for instance the US tele-marketing sector: they have the advantage of relatively low wages (real wages have been under attack in the US going back to the 1980s), an anti-union culture, much less holidays and social protection measures. In these sectors, they will have cost advantage. We have three options when confronted with such sectors: (a) compete on the basis of superior service, (b) social protection measures for the low-paid, (c) move on to other sectors where competition over race-to-the-bottom wages are not an issue. These are not mutually exclusive. But, again, this demands a forensic analysis of where we can compete and on what basis, and what supportive policy tools we can put in place. There are, in some sectors, no easy answers. Though I believe that a number of UK companies are returning their telephone service supports back to the UK, realising that while other countries may compete on wages, they are not competitive in other areas - such as customer service.

CMK, far from being 'perhaps foolish', I would suggest that a debate that is not centred on the excellent points you have made will be foolish. There is little debate on our business culture. Somewhat surprising since our indigenous sector is so weak - weak to the point that we are primarily driven by foreign-owned companies - many of which might be considered foolish by some contributors to the national debate on competitiveness.

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