Wages Aren’t Really Rising. It’s not a problem – Yet

by Cormac Spencer, Consultant and Director with Link Personnel Services

Linkedin: Cormacspencer

Recent headlines have heralded the return of the pay rise citing wage growth in the order of 1.8% year on year, with some sectors strongly outstripping that figure (particularly IT and Administration). The reports neglected to say, that at €697.52, the average weekly wage was only marginally above the corresponding figures for the whole of 2011 (€690). The fact is we have seen wages stay pretty static over the last 5 years, however, because of a muted rise in the cost of living over that period (inflation in the economy was down 0.2% last month and up only 1.9% since 2011) this lack of wage growth is not seen as a big problem – YET.

The European Central Bank’s stated objective is growth in inflation by about 2% per year and they are currently pumping €1.1 trillion into the system to achieve that. So far this quantitative easing has not produced the desired results, so Mr Draghi et al may well announce a significant increase in the programme before the end of the year– watch this space!. However, If the ECB has its way and inflation grows while wages remain static, we could be in for some industrial unease in Ireland.

After years of economic strife most Irish people rightly feel they deserve more in their pockets, (we are some of the most productive workers in the world and work some of the longest hours in Europe) however the discussion on the financial health of Irish workers has focused solely on increasing income to as opposed to cutting costs. In most cases, It doesn’t matter how much you get paid in gross terms, but how much you take home and more importantly how far your wages stretch.

If inflation rises bring higher wage demands this will lead to the costs of our goods and services rising, damaging our competitiveness and potentially our economy. Rather than wait for this to happen, we should act now to boost pay packets and cut costs in our economy so that standards of living can rise without wages having to go up dramatically.

In the first instance, cuts in USC for 2016 will boost take home pay. This path should be continued by the new government in subsequent years to give back more to people who are working hard (especially those on lower wages). In terms of cutting costs, first on the list is the cost of having a roof over your head. A huge portion of Irish incomes goes on paying for accommodation, and in recent years these costs have only gone one way – It has to be tackled decisively and what’s more, it isn’t as difficult as it is being made out. Increasing the allowable height of buildings in our cities, utilising derelict spaces over shops in the heart of the city and taxing land owners who are intentionally holding on to sites without developing them in the hope of selling on at a higher price are simple ways that landlords and the government could act to reduce these costs. Yes we should build more, but we have existing structures that could be refurbished and brought on stream within 6-12 months.

We must also look at the cost of healthcare and indeed childcare in the country which see no signs of abating. The statutory cost of doing business can also be easily reduced, the benefits of which could be passed on to consumers and used to hire more staff. These measures cost the government very little but could have a significant impact on quality of life without requiring huge rises in wages.

Our economy is growing again, and wages will rise in the coming years, but by focusing more on the cost of living, we can better address the underlying problems of our economy, keep competitive and vastly improve our people’s standard of living.