IRISH LABOUR COSTS IN EUROPEAN COMPARISON

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1 IRISH LABOUR COSTS IN EUROPEAN COMPARISON MICHAEL TAFT RESEARCH OFFICER, UNITE THE UNION

2 EUROPEAN LABOUR FORCE SURVEY Labour Costs in Market (Business) Economy: 2011 ( ) Denmark Sweden Belgium France Luxembourg Netherlands Germany Finland Austria AVERAGE Italy Ireland Spain UK Greece Portugal 12.25

3 WELL BELOW EUROPEAN AVERAGES European Labour Force Survey measures hourly labour costs in all market NACE categories Data for enterprises with 10 or more employees the most complete Irish labour costs are well below European averages. Ireland ranks 11 th in the EU percent below the average of other EU-15 countries 24 percent below the average of non-med countries 30 percent below the average of other small open economies Market Economy: Irish Labour Costs in Relation to other Mean European Averages 2011 (%) Other EU Non-Med Countres Other Small Open Economies -30.4

4 COMPARISONS: TRADED SECTORS In the major traded sectors manufacturing and information & communication: Irish labour costs rank well below other European averages. Trade Sectors: Irish Labour Costs in Relation to Other Mean European Averages 2011 (%) Manufacturing EU-15 Non-Med SOE Information & Communication

5 COMPARISONS: NON-TRADED SECTORS In the major domestic sectors wholesale & retail and food & accommodation: Irish labour costs rank even further below other European averages. Domestic Sectors: Irish Labour Costs in Relation to other Mean European Averages: 2011 (%) Wholesale & Retail EU-15 Non-Med SOE Food & Accommodation

6 LABOUR COST INDEX Since 2011, increases in Irish labour costs have trailed most other EU-15 countries. -6.6% Labour Cost Index for Market Economy % Austria 6.3% Finland 5.7% Luxembourg 5.6% Sweden 5.2% Germany 4.9% Netherlands 4.8% Belgium 4.1% Italy 3.6% Average 2.9% Denmark 2.8% Ireland 2.4% UK 2.2% France 1.3% Spain Portugal

7 NCC: LABOUR COST GROWTH CHART

8 ACTUAL LABOUR COST GROWTH The recent National Competitiveness Council s Cost of Doing Business in Ireland presented labour cost-growth data in a way that suggested that growth was converging with that of EU growth especially since The reality is that Irish labour cost-growth has lagged considerably behind EU growth. EU-28 and Eurozone labour costs increased by 11 percent since Ireland increased by less than 2 percent Labour Cost Growth: (2008 = 100) European Union (28 countries) Euro area (17 countries) Ireland

9 IRISH EMPLOYEE COMPENSATION BELOW AVERAGE National Accounts data for the market economy reflects the European Labour force survey. National Accounts: Irish Employee Compensation in Relation to Other Mean European Averages: 2010 (%) EU-15 Non-Med SOE Irish employee compensation falls over 10 percent below the average of other EU-15 countries. In comparison to non-med countries and other small open economies, Irish employee compensation falls to21 and 25 percent below average respectively

10 EMPLOYEE COMPENSATION Employee compensation is made up of two payments: 1) Direct Wage: paid directly to the employee 2) Social Wage: paid to social insurance fund (or equivalent) The social wage takes the form of employers PRSI. In Ireland, the social wage is described as a tax. However, it is part of a workers pay package (this is given statistical form by Eurostat, the CSO and the OECD). The social wage allows workers to access particular services for free or at below-market prices (e.g. health); and to access income support in the event of certain contingencies (old age, unemployment, illness, family birth, etc.). As Ireland does not have a strong social wage, workers here don t benefit to the same extent as workers in other EU countries do (free GP care, heavily subsidised prescription medicine, pay-related unemployment benefits / social insurance pensions / sickness benefits, etc.

11 COMPENSATION: DIRECT WAGES When direct wages are compared, Ireland remains below-average, ranking 10 th. Denmark Market Economy Direct Wages 2011 ( per hour) While Irish direct wages are only 3 percent below the average of other EU-15 countries, this falls to 15 percent below the average of non-med countries and 20 percent below other SOEs. Luxembourg Sweden Belgium Netherlands Germany Finland France Average Austria Ireland Italy UK Spain Greece Portugal 9.78

12 COMPENSATION: SOCIAL WAGES Social wages expressed as employers social insurance as a percentage of gross wages. Irish social wage is the lowest in the EU-15 bar the UK (and Denmark which doesn t have a SI system). In the EU-27, Ireland is third lowest. This low level of social wage is a major contributor to Ireland low compensation / low labour cost status. It is also a major contributor to an anaemic social protection system. Italy France Belgium Spain Finland Average Greece Austria Sweden Germany Portugal Netherlands Luxembourg Ireland Social Wage (Employers' Social Insurance) as a % of Gross Wages: 2011 UK 8.7% 8.6% 13.8% 12.7% 11.9% 18.5% 17.6% 17.1% 16.9% 16.1% 22.9% 22.7% 21.5% 29.7% 29.4%

13 WAGES AND PROFITS: NON-FINANCIAL SECTOR Irish employee compensation when measured as a percentage of gross valueadded is substantially below the European labour share. While Irish profits were seriously reduced in the first two years of the recession, they have bounced back returning to high profit levels prior to the recession. Irish profits may be inflated by MNC accounting practices. However, even allowing for this, Irish wages would in all likelihood remain substantially below other EU countries Non-Financial Sector - Employee Compensation as a % of Gross Value Added: EU-28 Ireland

14 PRODUCTIVITY VALUE-ADDED PER HOUR Irish productivity measured as value-added per hour worked in PPS is above most other countries. Total GVA may be inflated due to the accounting practices of MNCs. When Forfas adjusted for this they found that These hourly adjusted national productivity estimates still suggest that productivity levels in Ireland are high relative to competitor countries. Belgium France Netherlands Ireland Germany Denmark Austria Sweden Spain Average Italy Finland United Kingdom Productivity in Total Economy: Value-Added per Hour Worked 2013 (PPS) Greece Portugal

15 ISSUES REGARDING WAGES: PRODUCTIVITY The argument that wage growth should be linked to productivity is economically sound However, there are considerable industrial implications. If workers living standards are to be based on productivity, then it is reasonable that they should have influence over the organisation of productivity inputs: process and product innovation, investment, wage differentials (e.g. between employees and management), working conditions (and their differentials) labour relations and human resources. Whether at firm, sectoral or national level for those whom productivity will determine wages, productivity itself must become accountable.

16 ISSUES: LABOUR COSTS We must re-think the concept of labour costs. Labour is the co-beneficiary of capital in the share-out of value-added which requires the inputs of both to be created. However, capital compensation is privileged over labour compensation through the characterisation of the latter as a cost. While much of the debate is focused on the impact of labour costs on the economy there is almost no discussion of the impact or efficiency of capital compensation. Nor is there discussion of the efficiency of the agents of capital compensation (e.g. employers, managers) though Enterprise Ireland and Forfas have surveyed managerial deficits in indigenous Irish enterprise.

17 SUMMARY Ireland is a relatively low-waged economy and, in particular, a low social-wage economy. In the low-paid sectors, Irish workers compensation is even lower. The gap between Irish and European compensation is widening as Irish compensation-growth is lagging. On the other hand, capital compensation is high relative to labour compensation (though MNC accounting practices skewers this). Irish productivity remains high relative to our competitor countries.

18 CONCLUSION Irish wages are uncompetitively low and this is undermining any nascent recovery that may be taking place. We have suffered six years of a domestic-demand recession fuelled by the crisis in the private financial and speculative sectors and exacerbated by austerity measures; measures that have proved inefficient and highly damaging. The suppression of labour compensation has played a significant role in this. How many enterprises have been liquidated, how many enterprises were not established due to wage suppression? We need wage-led strategies to reverse this. Economic efficiency and social equity requires that the low-paid be first in line: increasing the minimum wage, implementing Living Wage strategies, strengthening labour rights in the workplace.

19 CONCLUSION And just as importantly, we need a profound re-configuring of the relationship between labour and capital compensation at both a theoretical and organisational level. This requires a more detailed and exhaustive analysis of the economy at the sectoral and sub-sectoral levels. And it requires a new democratic dispensation in the labour market; the deepening of social density in labour-capital relations and the embedding of collective practices from the national to firm level practices which elevate labour from a passive to active element in the co-determination of the processes that create wealth, promote productivity, and enhance efficiency in our enterprise base. This sees the firm as a social asset and builds on the vision of Sean Lemass who highlighted the social accountability of enterprise practice.

20 ENTERPRISE AS A SOCIAL ACTIVITY Nobody nowadays regards the operation of an important industrial undertaking as being the exclusive private concern of its owners. Rather, each such undertaking is looked upon as a national asset contributing to the country s economic and social advancement.. The social consequences of fluctuations in the level of business activity are matters of public debate. The contributions which a progressive and efficient industrial concern can make to national welfare... are widely understood. The industrial manager has unavoidable responsibilities, wider than those placed on him by his employer. He should be regarded and regard himself as a public servant in the finest meaning of that term. Sean Lemass, 1957