Pay rises may lead to fewer jobs, says EU

Pay is on the increase, but the cost could be higher unemployment and fewer jobs, the European Commission warns in its economic forecast for this year and next.

Ireland should continue to be the EU’s fastest growing economy this year and next with a weak euro, especially, giving the economy a boost that is set to continue.

The forecast for the EU generally is the most positive since the crisis struck, with all the stars aligned to shorten the bad times and produce jobs and growth, according to the commission.

However, the report warns that if wage increases are not matched by an increase in productivity, Ireland will lose competitiveness — as happened during the boom.

It lists the “possible increases in public sector pay” as one of the main risks to the Government reducing the amount of money it has to borrow to pay for the running costs of the State.

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The commission is already on record advising against the Government putting the unexpected rise in tax-take into increasing wages and spending.

The total labour costs — including wages and social insurance — was expected to show a drop last year of 1.3% but this has now been increased threefold to 3.8%, with knock-on increases forecast for this year and next.

Similarly, unit labour costs, which take account of increases and decreases in productivity, are expected to be less favourable to competitiveness under the latest estimates, but still much lower than before the crisis.

The numbers out of work were expected to reduce more quickly next year but according to the latest estimate, it will still remain at the EU average of 9.2%, while the number of jobs created and the numbers at work will not rise as quickly as forecast three months ago.

Te number of jobs coming online is twice the rate of population growth but the Government needs to walk a narrow path to make sure the fruits of recovery are not lost, the experts say.

However, the commission’s warnings about wage increases should be ignored according to ETUC, the trade union umbrella group that said the turnaround was due to the EU reducing demands for austerity.

“If the same policies of austerity and wage devaluation are repeated, the same results will follow, and the recovery will falter again,” said Bernadette Ségol, ETUC general Secretary.

“Europe needs a sustainable recovery, not just a temporary bounce. Europe still needs a substantial investment plan to transform the recovery into a robust process.”

The commission attributes the improving economies partly to the austerity measures and changes in countries’ employment regimes, but warns that this is not the time to take the foot off the pedal.

Internal market commissioner Pierre Moscovici said the upturn was due to policy measures that were beginning to bear fruit, and external factors. “But more needs to be done to ensure this recovery is more than a seasonal phenomenon. Delivering on investment and reforms and sticking to responsible fiscal policies are key to obtaining the lasting jobs and growth Europe needs”.

While the recovery is very much linked to more exports, the forecast raises questions, noting Irish based multinationals are having goods produced outside Ireland that are noted in our export figures, but do not increase the tax take or create jobs in the country.

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