We must not lose the head on pay rises
Although this has risen during the ‘great recession’, it was still a feature of society during the years of full employment.
There are obviously many reasons for this, but anecdotally, it is clear that inter-generational unemployment is a massive problem in some socio-economic groups, and one cannot but feel that the balance between taxation and the social welfare system does play a role.
However, this is a very emotive area and, as I discovered a couple of years ago, addressing this issue in public does tend to generate a pretty vitriolic response from the usual suspects.
However, it is an issue that policymakers will eventually have to face up to in the context of the State’s dangerously high level of sovereign debt and future demographic developments.
Meanwhile, Government must continue to do its utmost to create an environment where entrepreneurs are prepared to invest, take risks and create employment.
I have argued many times over the lifetime of this Government that ultimately, its success or failure should be judged by the number of people in sustainable employment at the of its term of office.
The good news for the coalition parties is that solid progress continues to be made. Data this week showed that in the year to December last, total employment in the economy increased by 29,100 and is now 90,000 above the equivalent period two years ago.
A breakdown of the data for the final quarter of last year shows that with the exception of agriculture, forestry and fishing, which saw an annual decline of 10,900, every other segment of the private sector saw an increase in employment. Construction saw an increase of 13,100; the wholesale and retail trade saw an increase of 6,300; and the accommodation and food services sector was up by 1,800.
The unemployment rate has fallen to 10.3% of the labour force, down from a high of 15.1% at the beginning of 2012.
The breakdown demonstrates a broadly-based economic recovery is taking hold, because there is no greater manifestation of better business conditions, than a willingness to create employment.
However, there are still many problems evident in the labour market.
Long-tern unemployment accounted for almost 58% of total unemployment, and the unemployment rate for the under 25s still stands at a high 20.3%, but it is steadily declining.
While the labour market is getting better, unemployment is still unacceptably high and policymakers must avoid doing anything that might threaten the positive progress that is being made.
The decision to begin talks with public sector unions to reverse pay cuts, and the possible deliberations of the Low Pay Commission do give cause for concern. Increasing public sector pay when the Government is currently borrowing €8bn to run the country does not make sense and will just add to the cost of running the country.
Given the still fragile nature of our economic recovery and the still very difficult environment for most small and medium-sized businesses, the notion of increasing the national minimum wage, which would have a push-through effect on wages up the line, does not make any sense.
It would increase the cost base for business and would undermine the cost competitiveness of the economy and could ultimately derail the labour market recovery. It would fly in the face of the aspiration to make Ireland the ‘best small country in the world in which to do business’, and the aspiration to preserve and improve competitiveness.
The tax and welfare system should be used to put money into people’s pockets, rather than facilitating and encouraging an economically damaging upwards spiral in wages that fails to recognise the challenging business realities.
At the first signs of recovery, we must not lose the head and revert to the policies of the past. It is politically popular to push this agenda, but ultimately, could damage the long-term health of what is still a very fragile economy.
Jim Power
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