Saturday, 10 July 2010

Wages in the Crisis

Rory O'Farrell: The European Trade Union Institute has brought out a working paper on the impact of the crisis on wages in Europe (this is perhaps shameless self promotion as I wrote the paper).

It can be downloaded for free from here.

Though a lot of the data for Ireland is not available, the last section on international competitiveness is relevant to Ireland. Relative to Germany we did not lose wage competitiveness in the export driven manufacturing sector, and the role of non-wage costs to business is highlighted.

1 comment:

Paul Hunt said...

@Rory O'Farrell,

Well done on adding more useful grist to the mill. At the end of his piece in today's UK Observer:
William Keegan highlights both the declining share of labour relative to capital in value added and the fallacy of universal export-led growth. The huge imbalances - that generated the global liquidity glut feeding the banking and financial bubble - arose from persistent export surpluses, globally, in China and, in the Eurozone, in Germany and were accompanied by petrodollar surpluses in the Gulf. Somebody has to buy these exports and the global downward pressure on real wages increased indebtedness in the importing countries.

The problem is that the puritan, frugal Germans won't spend and it will take a long time for the government in China to rebalance its economy from export-led growth to domestic consumption while retaining its iron political grip.

These global and EZ imbalances will persist for the foreseeable future. While, in this context, Ireland needs to exploit any comparative advantage it might have, the domestic economic impact of increasing exports is likely to be limited. And, rather than increasing the tax base by bringing more workers into the tax net and cutting public sector jobs, pay and services, there should be an emphasis on reducing the cost of labour (and increasing real wages) by shifting taxes to land and resources and by tackling surplus profits in the sheltered sectors. (I was calling for a land tax as far back as 1986 and any perceived disputes I may have with Michael Taft re the semi-states boil down to the costs to consumers of inefficient financing of investment in these businesses and of the application of flawed models of competition.)

And even if this were done, the NAMA and Anglo/INBS millstones remain around the necks of taxpayers. We can only hope that Brussels will decree some rational wind-down of Anglo and that the bank stress tests (results due on 23 July) will lead to some restructuring of bank bond debt.