Irish high-wage economy inevitable, says economist

10 Apr 2003

Ireland cannot return to a low-wage environment said Bank of Ireland’s chief economist Dr Dan McLoughlin, in the face of rising criticism by companies such as Dell that the country has become a high-wage economy and is losing its competitiveness.

Speaking at a meeting of the American Chamber of Commerce Ireland in Dublin yesterday, McLoughlin echoed Taoiseach Bertie Ahern’s recent call to the IMI conference for industry during the week that Irish-based industry must get more competitive.

McLoughlin said that Irish government policy would need to start concentrating on enhancing productivity. “Official policy,” he said, “should now concentrate on enhancing productivity through better management of the National Development Plan, maintaining a high rate of capital investment in public infrastructure, and by a commitment to fostering competition in all aspects of economic life.”

He said industry must accept that Ireland is now one of Europe’s richest populations. “Ireland’s relatively high price level within the EU reflects the high GDP per head – rich countries have high prices – and equating this with competitiveness is false, as productivity relative to costs in the traded sector is the key. On that basis Ireland cannot revert to being a low wage economy.”

In recent weeks, Dell, which accounts for 5pc of Ireland’s exports and employs close to 5,000 people has been making noise about Ireland’s increasing high wage culture. In particular, chief operating officer Kevin Rollins last week cited high wage costs in Ireland as a threat to the country, making locations such as India more favourable for high productivity work.

McLoughlin hit out at the culture of dependency that exists within Irish society and industry. “Ireland’s dependency culture extends from the individual to the corporate world, with too many industries still looking for the government, which means the tax payer, bailing them out when market conditions turn against them.”

He was positive about the economy, indicating that it has weathered the weak global backdrop remarkably well, and, unlike other countries in the eurozone, has emerged without any serious loss of equilibrium in either its fiscal or its external accounts. He also indicated that the 2003 exchequer deficit might come in under target.

“Unemployment has risen only modestly, thanks to continuing employment growth, and the flexibility of the labour market has ensured a marked deceleration in wage inflation which belies the claims of those who warn of a ‘free for all’ in the absence of a partnership agreement. This flexibility will limit the deterioration in competitiveness and result in a fall in price inflation,” McLoughlin said.

Joanne Richardson, chief executive of the American Chambers of Commerce Ireland, said that the weak US economy has not impacted on the inflow of US investment into Ireland, pointing to job announcements by Abbot, Xilinx, IBM and Google.

It is estimated that there are approximately 570 companies employing over 90,000 people in Ireland. US foreign direct investment is valued at over US$34bn.

She said that there was an urgent need to protect these investments. “At policy level, education and quality of infrastructure will continue to be the key to success. However, achieving the results will also depend to a great extent on the managers of US companies in Ireland,” Richardson said.

By John Kennedy