While ages grew in every other member state, they fell by 1.8% in Ireland, making labour costs sixth-lowest in the eurozone.
However, falling wages will not revive the economy, warned economist Tom McDonnell of the independent thinktank Tasc, as it means less money to spend in the domestic economy, the sector that was holding back economic recovery.
Hourly labour costs that include employers’ social contributions were €27.40 last year, the 10th highest in the EU according to figures released by Eurostat. The EU average was just slightly higher at €27.60.
The average increase across the euro area was 4.2% and 2.7% in the EU as a whole, taking into account the smaller economies of the central and eastern member states. However, in Ireland it was down by 1.8%.
In 2010, labour costs in Ireland were the ninth highest in the EU and seventh highest in 2009 and were at least €1 an hour higher than the average.
Mr McDonnell said that while the argument was that employment would not grow until labour costs fall, the facts did not support this. For instance, labour costs in Portugal, Spain, Greece and Italy are among the lowest in the eurozone but all have high unemployment.
While the European Commission and the ECB as part of the Troika has been emphasising the need to depress wages at the lower end of the scale and to cut back on social welfare payments, the IMF has been warning that low incomes depress economies and contribute to a debt deflation cycle, said Mr McDonnell.
“The IMF has emphasised that when you are in a crisis the last thing you want to do is cut the income of those who are on low incomes because of the impact on domestic demand.
“Cutting social welfare payment has a similar effect and you get caught in a downward spiral.”
The latest figures released by Eurostat show that people are being forced to take pay cuts or are being re-employed on lower rates. The emphasis should be on increasing productivity and upskilling people, especially the 150,000 that lost their jobs in the construction industry, he said.
The average figures mask significant differences between member states, Eurostat said, with labour costs ranging form €3.50 in Bulgaria to €39.30 in Belgium.
The preliminary estimates from 2011 cover enterprises with more than ten staff.