Showing posts with label Irish earnings. Show all posts
Showing posts with label Irish earnings. Show all posts

Wednesday, August 29, 2012

29/8/2012: Some facts about Irish average earnings: Q2 2012


Q2 2012 earnings and working hours data for Ireland has been released today by the CSO. Here are top changes and trends:
  • Average hourly earnings were €21.91 in Q2 2012 compared with €21.90 in Q1 2011, representing no real change over the year. [Note: either CSO has not heard of inflation, or there was no inflation in Ireland Q2 2011-Q2 2012]
  • Average weekly paid hours were 31.4 in Q2 2012, which was the same as those recorded in Q2 2011.
  • Public sector numbers were 380,800 in Q2 2012, a fall of 25,800 (-6.3%) from Q2 2011 when the total was 406,600 (including temporary Census field staff).
The above are straight from CSO analysis. Excluding census workers, public sector (including semi-states) employment stood at 380,800 in Q2 2012 down on 401,300 in Q2 2011 and on 421,400 in Q2 2008 - a decline of 20,500 y/y of which 17,600 came from outside semi-state bodies.

Table below lists changes in earnings in broad sectors:

However, on aggregate, year on year to Q2 2012, per CSO:
  • Weekly earnings in the private sector fell by 0.5% annually, compared with an increase of 2.8% in the public sector (including semi-state organisations) over the year, bringing, average weekly earnings in Q2 2012 to €611.66 and €918.99 respectively. 
  • In the three years to Q2 2012 public sector earnings have fallen by €27.10 (-2.9%). This compares with a decrease of €24.95 (-3.9%) in private sector average weekly earnings in the four years since Q2 2008.
Here's the chart showing decomposition / breakdown of declines in public sector employment:

In Q2 2009, the peak year for average weekly earnings in the public sector, the gap between private sector average weekly earnings (€618.08) and public sector average weekly earnings (€946.09) was 53.07% in favour of the latter. In Q2 2012 the gap was 50.3% - slightly smaller, but not significantly so and factoring in that between 2009 and 2012 many more senior (higher paid and more experienced) public sector employees have retired (including via incentivized early retirement schemes), leaving the workforce in the public sector less skilled and experienced than it was in 2009, the gap has probably increased, like-for-like. Also, the same is exacerbated by the heavy younger workers losses of jobs in the private sector, which has left private sector workforce on average probably more experienced and senior in tenure than prior to the crisis.

In Q2 2008, the gap was 46.2% which was lower than what we are observing today.

Remember, we are being told that everyone should take proportional 'pain'...


Sunday, May 13, 2012

13/5/2012: Sunday Times 06/05/2012: Irish labour costs competitiveness


This is my Sunday Times column from May 6, 2012 (last week), unedited version.


Latest research from ESRI shows that, contrary to the prevalent opinion in the media and official circles labour earnings in Ireland have been rising, not falling, during the early years of the crisis. This trend, on the surface, appears to contradict claims of wages moderation in the private sector, the very same claims that have been repeatedly used to argue that structural reforms and changes in Ireland during the crisis have seen a dramatic return of productivity growth.

The ESRI research, carried out by Adele Bergin, Elish Kelly and Seamus McGuinness used data from the National Employment Surveys on the changes in earnings and labour costs between 2006 and 2009. Per authors, “despite an unprecedented fall in output and rise in unemployment, both average earnings and average labour costs increased marginally over the period.”

Surprising for many outside the economics profession, these findings actually confirm what we know from Labour Economics 101.

Firstly, wages and earning are sticky when it comes to downward adjustment. In other words, while wages inflation can be rampant, wages deflation is a slow and economically painful process. This is precisely why currency devaluations are always preferred to cost deflation (or internal devaluations) as the means for correcting recessionary and structural imbalances.

Secondly, wages deflation  is even slower in the economies where collective bargaining is stronger. Ireland is a strong candidate for this with its Social Partnership and tenure-linked pay structures.

Thirdly, average earnings movements reflect not only changes in wages, but also changes in the composition of the national and sectoral employment. More specifically, as the ESRI study concludes, the core drivers of rising earnings during 2006-2009 period were “increases in both the share of and returns to graduate employment and a rising return to large firm employment”. Of course, both of these factors are correlated with the destruction of lower-skilled and less education-intensive construction and domestic services jobs.

Lastly, increases in part-time employment also drove up average earnings. In fact, the latest figures from the Eurostat show that a total of 7.4% of our currently employed workers are classified as part-time employees willing to work longer hours, but unable to secure such employment. This is the highest proportion in the entire EU27, and well above the 3.9% reading for Greece.

Overall, ESRI researchers concluded that “a good deal of the downward wage rigidity observed within Irish private sector employment since the onset of the recession has largely been driven by factors consistent with continued productivity growth.”

In my opinion, this is not a foregone conclusion. Irish labor productivity may have risen during the period of the crisis, but much of that increase is probably accounted for by the very same four forces that drove increases in earnings. Higher proportion of jobs in the economy within the MNCs-dominated exporting sectors, higher survival rate for jobs requiring higher skills, and the nature of the early stages of public sector employment cuts most likely simultaneously explain changes in both earnings and productivity.

The latter aspect is worth explaining. In the early part of the crisis, all public sector employment reductions took place out of cuts to part-time and contract positions, thus most heavily impacting lower earning younger workers. This would simultaneously increase the proportion of higher paid public employees and the average productivity in the sector. Post-2009, cost reductions have been running via early retirement schemes, but these are not reflected in the 2009 data.

In other words, on the surface, it might appear that Irish labour productivity has grown over time, but in reality, it is the reduction in less productive workers’ employment that has been driving these ‘improvements’. Incidentally, this story, not the ESRI conclusion, is consistent with the situation where domestic economic activity has contracted more than domestic employment.

In brief, our ‘productivity gains’ outlined by the ESRI might be a Pyrrhic victory in the Irish economy’s war for internal devaluation.

And the said victories continued since 2009 – the period not covered in the ESRI study.

Since January 2010, earnings have been falling in Ireland as jobs contraction became less pronounced and as public sector entered the stage of early retirement exits. Irish average hourly labour costs peaked at €28.0 per hour in 2009, 5.7% above the Eurozone average. In 2011, however, the average hourly labour cost in Ireland stood at €27.4 per hour, 0.7% below Eurozone average. If in 2009 Ireland had the eighth highest average hourly cost of labour in EU27, by 2011 we were 11th most expensive labour market.

According to the Eurostat, across the Irish economy, labour costs rose 7.7% in 2007-2009 period followed by a drop of 1.6% in 2010-2011. However, over the period of the entire crisis, the labour costs are still up 5.2%. The only good news here is that our euro area competitors have all posted higher labour costs inflation. The same pattern is repeated in Industry, Services and across the Public Sectors. Only ICT and Financial Services broke this pattern, driven by fixed wages in the state-owned domestic banking, robust demand for IFSC and ICT specialists. In Professional, Scientific and Technical Activities, earnings rose 6.3% between 2007 and 2011, with wages moderation kicking in only from 2010 with a relatively strong decline of 4.8%. Still, this is just half the rate claimed in the official promotional brochures extolling the virtues of decreased labour costs in this area in Ireland.

With relative stabilization of unemployment and longer duration of joblessness, our average earnings are now set to decline over time as younger educated workers come into the workforce to replace retiring older workers. In the mean time, our productivity metrics will continue to improve in specific MNCs-dominated exporting-heavy sub-sectors. Competitiveness will improve, but not because real productivity will expand. Instead, continued re-orientation of economy toward MNCs will drive headline numbers as we become more and more a tax haven, rather than indigenous entrepreneurship engine.

These accounting-styled gains in productivity and cost competitiveness are likely to coincide with stagnation of Ireland’s GNP. In the period since 2007, Irish after-tax earnings have actually suffered significant deterioration compared to our counterparts in Europe. This deterioration is strongly pronounced for demographically most productive part of our workforce – those in the 25-45 years of age.

Eurostat data shows that in 2007-2011, after-tax earnings in Ireland have increased only for single persons with no children earning 50% of the average wage (a rise of 2.3%) and households with two parents and two children on 100% of the average wage income and sole earner (up 1.8%). The smallest declines in after-tax earnings occurred for the category of single person households with no children earning 100% of the average wage (down 0.8%), families with two earners and no children bringing in 200% of the average wage in combined earnings (down 0.8%), and families with similar income (down 0.6%). At the same time, the largest declines in after-tax earnings were recorded for single persons and families with no children and earnings of 167% of the average wage (declines in the range of 2.3% and 3.7%). Above-average after-tax earnings drops were recorded for all other types of households, including families with children on combined earnings in excess of 133% of the average wage. In other words – younger households and households with two earners have been the hardest hit by the recent trends.

With decline in net after-tax earnings, Irish economy is now facing a number of pressures. Costs of living, commuting and housing are likely to continue rising in months and years ahead, driven by the state desire to extract more in indirect taxation and the market structure that is largely captured by the less competitive state enterprises and defunct banks. Direct tax burden will also continue to rise, while pre-tax earnings will fall. These pressures will imply further reductions in consumer spending and domestic savings. The latter means, among other things, that we will see renewed pressure on banks (as part of our savings reflects repayment of household debts) and on domestic investment.

CHARTS: 





Box-out:

The latest Community Innovation Survey for Ireland for the period of 2008-2010 has been released by the CSO, detailing some very interesting trends in overall innovation activity in Irish economy. Headline figure shows that 28% of enterprises in the industrial and selected services sectors had product innovations in 2008-2010, with 33% of enterprises engaged in process innovations. However, only 18% of enterprises were engaged in both process and product innovations. Not surprisingly, foreign-owned enterprises led Irish-owned enterprises in terms of product innovation 38% to 25%, in process innovation 40% to 30%, and in dual product and process innovation 25 to 16%. Irish-owned enterprises derived slightly more of their total turnover from adopting innovations new to the firm, while foreign-owned enterprises led strongly (more than 2.5 times) in terms of new to market innovations. This suggests that Irish enterprises strength remained in adopting new innovations developed outside, while foreign-owned enterprises are strong leaders in creating new products, services and processes for the market. Not surprisingly, of €2.5 billion spent on innovation in 2010, just 49% went to finance in-house R&D. The most innovation-intensive sector of the MNCs-dominated economy was, not surprisingly Manufacture of petroleum, chemical, pharmaceutical, rubber and plastic products (72.5% of enterprises with technological innovation activities), while the most intensive traditional sector was Manufacture of beverages and tobacco products (91.7%). Did someone mention booze and pills sciences?

Saturday, November 21, 2009

Economics 21/11/2009: Public v private sector income inequality is up, again

Updated images files

There are many claims flying about our bearded men of Siptu and Ictu nowadays. None are more offensive than their claims that private sector has not been hit hard in terms of wages and earnings by the current crisis. Well, thanks to CSO's inability to collect timely and frequent data, we had to sit back for some time, tolerating these unionist claims. Alas, data for Q2 2009 is starting to show that those of us who said that private sector is suffering earnings declines while public sector is basking in the sunshine of rising earnings were right. Here are the numbers:

Table 1 reports actual average weekly earnings based on CSO data sets. Yep, that's right -public servants make more money than the average managerial, professional and clerical grade in every other sector except financial services and insurance. Note, I separated electricity, water supply and waste management sector into quasi-public sector because it is heavily dominated by massively inflated earnings in ESB and other state monopolies.

Next, consider average weekly earnings for professional and clerical grades and for public sector overall. The reason for this is that our unionists keep on droning that public sector workers are so superior to the average worker in the rest of economy that they must be compared with higher grades. Forgive my disbelief that, say, CIE's bus drivers are so productive and so highly skilled that they should be benchmarked against branch managers of Irish banks, but let us indulge the Siptu/Ictu crowd:
Yes, it says that: between Q2 2008 and Q2 2009 more categories of public sector workers started to earn in excess of private sector average earnings for managers, professionals and clerical workers. And this is at the time when Jack O'Connor and the rest of Unions' leaders are talking about rising tide of income inequality (oh, give me a sec and I will get back to that concept).
Now, chart above shows that wages have been rising across all (but one) public sector sub-sectors. Average public sector earnings are up 3.2% in a year to the end of Q2 2009, while average private sector wages are down 6.8% over the same time - a swing of 10 percentage points. Happy times for CPSU and the rest of the unions pack.

Of course, years ago, when we had fast growing private sector wages, the unions, CORI, the rest of the social pillar fringe were loudly bemoaning the rising tide of income inequality. So what can we say now? Check out the following table:
Yeps, that's right, applying Socialists' faulty economic logic, last year our Trade Unions' policies have led to a rise in income inequality between private and public sector in favor of higher income to public sector.

If anything, the latest CSO data suggests that the next month's Budget 2010 should open with a significant across the board cut in public sector wages by at least 10% (to simply undo income inequality that has been generated since 2008), and only then proceed to all other cuts. Have a pre-Budget Addendum on Public Sector Earnings Inequality first, before you cut education, health and even social welfare, Minister.