Michael Taft: Following on from the excellent points made by Proinsias Breathnach and Slí Eile regarding the role of labour costs in economic competitiveness, it might be timely to re-examine Forfas’s comprehensive study of the cost of running retail enterprises. This is, of course, an untraded sector but such sectors are held up as being drivers in our higher living costs. If wages are found to be excessively high in comparison to other Euro zone locations, then we might, just might conclude that high labour costs are uncompetitive and feed into the economy’s general uncompetitiveness. But if not, then what is the problem?
The usefulness of the Forfas study - carried out by FGS Consulting – is the detail in which it examines the input costs: labour, rent, utilities, professional fees, transport, etc. It compares Dublin, Cork, and Limerick with Belfast, Manchester, and London. It also compares costs with Maastricht which is useful because costs comparisons are not entangled with currency depreciation. In addition, they survey these costs for department stores, convenience, stores, operations in high streets, retail parks, etc. It’s exhaustive and illuminating.
That the cost of running retail operations in Maastricht is lower than in Dublin shouldn’t surprise us. The cost for running multiples is broadly the same. However, for department stores Maastricht is up to 15 percent cheaper while in retail parks they are 4 percent cheaper. So what accounts for these cost differences? Let’s run through the different categories (the following compares Dublin with Maastricht at 2008 prices).
Labour Costs: If Maastricht operations are cheaper, it’s not because of labour. Forfas surveyed four categories of employees and found that in all categories, wages in Maastricht were higher: Sales Assistant (12.7 percent higher), Customer Sales Rep (26.6), Retail Buyer (19.7) and (9.0). So, we can discount wages as the reason for high operating costs here.
We can also discount employers PRSI contributions: here they are 10.75 percent, in the Netherlands it is 17.28 percent - 61 percent higher. Add all that together and labour costs are substantially less in Dublin (real devaluationists – take note).
Gas: gas prices are 18 percent cheaper in Dublin.
Water charges: water charges are 16 percent cheaper in Dublin.
Transport and Fuel: Inbound freight costs are 52 percent cheaper in Dublin; petrol is 23 percent cheaper while diesel is slightly cheaper at 2 percent. Indeed, labour-related transport costs are 19 percent cheaper here.
Courier Costs: It costs €8 to deliver a package within Dublin’s city centre; in Maastricht the cost is €49.
Accountancy Costs per hour: It’s 7 percent cheaper in Dublin.
So, labour costs (the largest input), payroll taxes, gas, water charges, transport and fuel (including labour-related transport costs), couriers and accountants – all cheaper here than in Maastricht. So what’s going on? Why is the cost of running retail operations more expensive here than in Maastricht?
Rent: rents are the killer. For city centre locations Dublin rents are €2,600 more expensive per square metre; for high street locations (Grafton Street compared to Grote Straat) the differential is a staggering €8,000 per square metre. Even in Outer City Shopping Centres (such as Dundrum), rents are nearly €2,700 dearer here per square metre than the Maastrich equivalent. That’s a lot money flowing out of consumers’, workers’ and owners’ pockets into commercial landlords’.
Banks: Overdrafts are more expensive here, with rates for ‘Under €1 million’ being 9 percent here compared to 6 percent in Maastricht. As the report points out:
‘In terms of the cost of finance, Ireland is the most expensive location for overdrafts and term loans. For example, an overdraft of €500,000 in Ireland would cost a business in Ireland an additional €14,800 per annum in Ireland compared with a similar facility in the Netherlands.’
So, property and banks – where have we heard that story before? There are a few other categories in which Dublin is more expensive than Maastricht.
IT service charges per hour: In Dublin, its €166 per hour; in Maastricht its €32.
Fixed Telephone Costs per minute: in Dublin, its 1 cent more for local calls, 16 cents more for international European calls, and 8 cents more for calls to the US.
Mobile Phone Costs: for local calls its 30 cents more for Dublin and 59 cents more for US calls; calls to international European destinations, however, are 20 cents cheaper in Dublin. After recent price reforms, though, these differentials may have well narrowed.
Electricity Costs per Kilowatt Hour: in Dublin, its 13.9 cents compared to Maastricht’s 11.1 cents. If, however, the Regulator would allow competition in the electricity market, costs in Dublin and Ireland would fall.
Refuse Charges: they’re 42 percent more expensive in Dublin (or €55 more per tonne). However, costs for non-hazardous and biological gate fees are cheaper in Dublin.
Legal Fees: they’re 21 percent more expensive in Dublin.
So what can we conclude? If one were to take rents and bank charges out of the equation, if would be cheaper to run a retail operation in Dublin than in Maastricht. But oh, those landlords and bankers . . .
This should make us cautious when talking about ‘high costs’ in the economy. What we badly need are more forensic examinations of the different economic sectors – of the type that Forfas has carried out with the retail sector. This would raise the debate above the level of assertion and rhetoric and allow us to put forward more effective policies based on concrete evidence, to address those areas where we do fall down.
But as the Forfas report shows – we don’t fall down on all that many areas. And certainly not on labour costs.