Loss of competitiveness still serious issue especially for indigenous industry

LOSS of competitiveness remains a serious issue for the economy, particularly indigenous industry, where up to 13,000 jobs have been lost in the past two years.

Industry suffered a reversal in competitiveness in the period 2000 to 2003, according to a new report.

While the situation has eased the report warns the indigenous sector is still exposed.

Compiled by Davy Stockbrokers it says lack of competition is being paid for by job losses.

By contrast the services sector accounting for 45% of employment is in good shape, judged on the basis of the amount of jobs the sector is creating.

"We only have to look at the trend in employment to see that things are not quite so rosy in industry."

It says the loss of jobs since the last study carried out in June 2003 suggest "at conditions have deteriorated, not improved" for the indigenous sector.

Between the last quarter of 1996 up until the third quarter of 2000 Irish industry was competitive, said the report.

"But then things went wrong. What happened was that earnings per hour in sectors dominated by indigenous companies where employment is high far outstripped increases in output per man hour," said Davys.

To stress the point the report notes the rise in Unit Labour Costs in indigenous industry of over 4% was quite high between quarter three of 2000 and the second quarter of 2005. That compares with an average increase across the EU of just 2%.

Anything above 4% in the rise of labour costs is regarded as a loss of competitiveness.

In the exposed firms almost half suffered an increase of over 4% in Unit Labour Costs (ULC) which explains why Irish firms still have ground to make up.

The study found sectors accounting for 30% of employment in industry had "unacceptably high" ULC growth in 2000 to 2005. That was double the uncompetitive levels of 15% between the earlier successful period of 1995 to 2000.

Businesses have gone to the wall as the cost factor caught up with them.

In sectors where ULC was high companies folded.

One case in point was the agricultural and mining machinery manufacturing sector where a total of 29 out of 307 companies disappeared over the period.

The study found also however that in the area of communications equipment manufacturing, which has a strong multinational presence, that it also suffered.

Labour input costs rose at an even faster pace than the surge in output in 1995 2000 and jobs in that area have been shed at a rapid rate as a result.