Industrial unrest: A wages bubble would cost us jobs

OVER the last three years, businesses have put 125,000 people back to work; in jobs that have provided families with new opportunities, and entire communities with a fresh sense of value and purpose.

The economy is now moving firmly in the right direction, and unemployment looks set to fall to 8% this year, from a peak of over 15% in 2011. It is still far too high, but we’re moving in the right direction.

As the economy improves, wage pressures have reemerged. This is a good thing and a sign of a normal, healthy economy and labour market.

Thankfully, most companies have been in a position to award modest pay rises this year and this is helping to lift the wider economy and boost consumer activity after many years of stagnation and decline.

The combination of pay rises and tax cuts meant the average worker’s take-home income rose by over 3% in January, and will result in a net take-home pay increase of about two weeks’ pay over the course of 2016.

As a result of changes to taxation in the last two budgets, as well as pay increases in private companies, the average worker will be better off by almost one month’s pay by the end of the year compared to 2014. This is at a time of historically low inflation — the cost of goods and services across the economy is similar to what it was in 2008.

However, not all companies are growing at the same rate, and some parts of the country have yet to feel the full benefit of recovery. The average turnover in retail businesses, for example, is still 15% below where it was in 2007. This reality needs to be reflected in wage expectations. One of the big mistakes of the boom years was awarding significant pay increases that did not reflect the health of individual businesses or the economy as a whole. Inevitably, this didn’t last.

The economic crash resulted in a very painful adjustment, many faced having their wages frozen or cut significantly. Many others lost their jobs.

The repeated proposition that wages should be increased to make property more affordable suggests one of the most obvious lessons of the crisis and the property crash has not been learnt.

Yes it is true that a minority of workers are under significant financial pressure. But this is not a sound reason for economy-wide pay increases, detached from the economic realities that different employers are facing.

The idea that wage increases should chase property prices is a recipe for disaster, and would only bid up prices and kickstart another property bubble.

Unfortunately, it now looks like we could be moving into a period of greater industrial discord, after a period of relative calm. This is not surprising given the difficult crisis years and the pent up frustrations that have built up. But in many cases pay claims go far beyond what is reasonable or affordable.

The Luas dispute is a case in point. The move by drivers to reject the pay deal negotiated at the Workplace Relations Commission is deeply frustrating and suggests a mindset detached from economic realities. The offer on the table, which has understandably been withdrawn, went beyond what is happening in many other parts of the economy. Luas workers benefitted from pay rises throughout the crisis years, when many others had to deal with pay cuts or protracted pay freezes.

The Luas dispute is just one example of a series of ongoing, exaggerated pay disputes that risk undermining the economic gains of recent years. There can be no return to bubble- economy wage inflation, or spiralling relativity pay claims because, ultimately, everyone loses.

Industrial disagreements are, of course, not just restricted to parts of the private sector. A number of public sector unions are now calling for the Lansdowne Road Agreement to be renegotiated, even though it still has two years to run.

Under the current agreement, around €900m has been allocated to pay, and it provides for increases comparable to those being agreed in the private sector.

For example, clerical officers in the civil service will see their pay rise by 9% over the period of the deal, Gardaí by 8.5%, nurses by 7.5%, and teachers by 7%.

Of course pay must rise over time, and public sector pay and conditions must be comparable with the private sector, but this must happen at a sustainable rate, and it must balance the legitimate expectations of workers with the pressing need to invest more in the quality and capacity of our public services.

Reallocating resources to provide for higher pay rises would mean less money for health, education and capital projects.

This year, we have the chance to further cut unemployment and attract back migrants who left during the crisis, but we must not repeat past mistakes. If costs spiral and we lose our competitive edge, we will pay for it in jobs.

At the same time we all have a responsibility to ensure that when disputes arise, they are resolved in a timely and responsible way. Ibec, as the national voice of business, is committed to playing its part at a local and national level.

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