Ciarán Nugent: Ireland must place a higher value on its competitiveness

The living wage for 2021/2022 was calculated at €12.90 an hour, or €503 a week. More than a third of Irish workers earn less. The low pay commission recommended a minimum wage increase of 30c to €10.50, or 3%, for 2022. They are obliged to consider “national competitiveness”.

With inflation at around 5%, this amounts to a real term cut. If inflation were measured separately for renters, it means an even bigger cut for this group. Material deprivation for workers will almost certainly increase again this year, the third year in a row.

Hospitality has, by some margin, the lowest wages of any sector in Ireland. One-in-five are on temporary contracts and almost half are part-time. The sector accounts for less than 2% of overall value to the economy. Yet, this sector gets disproportionate attention relative to its economic importance. This is due to the fact that Irish domestic business is disproportionately focused in this low productivity, low value, and low wage sector and wages set in the sector have an important role in dampening wage growth across the economy.

Ireland has one of the highest shares of low wage employment in the developed world. 

There has been an international shift in economic orthodoxy over the past number of years, away from austerity towards more targeted state-led investment, especially with borrowing costs historically low.

The focus on competitiveness in the low wage economy in Irish economic discourse is indicative of a vision of the economy going forward at odds with the aspirations of the majority of Irish people, highly educated younger generations especially. 

Few share this dystopian vision for the future of barely scraping by.

Expenditure to help households meet the cost of housing increased by €1bn in 2020 alone with the growing mismatch between wages and living costs.

The language of fiscal prudence in 2022, especially given the economic success of maintaining household incomes in 2020, is archaic and outdated. Higher incomes underpin economic growth.

One striking feature of the top 10 most competitive economies in the world, according to two prominent international indices, is that they are exclusively high-wage economies. Switzerland, Sweden, Denmark, the Netherlands, Singapore, the US, and Hong Kong make the top 10 in both lists.

Ireland ranked 13th in 2021 out of 64 countries. We fall behind in basic infrastructure, technological infrastructure, scientific infrastructure, with our worst relative performance in prices. Our digital competitiveness rank is 20th. The World Economic Forum has Ireland at 24th , falling behind in competitive infrastructure, ICT adoption, macroeconomic stability and the financial system.

The top 10 list of FDI per capita are also all high-wage economies, with Ireland second. The minimum wage has little impact on foreign direct investment.

The Nevin Economic Research Institute was founded during the recession in response to the fact that austerity was the only approach considered to deal the financial crisis of 2008 and subsequent bank bailout. Solutions from a workers’ perspective were drowned out and along with them alternative, inclusive solutions to the whole mess.

The recession was due to a failure of financial regulation and capital, a fact which was very skilfully and successfully obscured and replaced with a false narrative on high wages and wage competitiveness. 

This justified cutting public sector wages and services to pay off the debts of Irish banks resulting in a downward demand spiral and damaging the economy.

Successive governments including Fianna Fáil, the Greens, Fine Gael, and Labour all bought into and drove this narrative. Young people paid the price.

As we’ve seen, competitiveness in high-value, high-wage sectors — which should be our focus — takes investment. Investment in infrastructure, education and training, R&D and investment in services to bring down prices that put upward pressure on wages.

This means having levels of taxation typical of a developed economy. Irish employers pay some of the lowest PRSI rates in Europe. Bringing this up to European norms would bring in over €6bn.

There is a widespread consensus now that austerity was a mistake. We should not make that same mistake again.

• Ciarán Nugent is an economist with the Nevin Economic Research Institute