FREE KIC - NO. 3 DECEMBER 05

National wage agreements and the Celtic Tiger

I have always been sceptical about claims that the success of the Irish economy is primarily due to centralised pay bargaining in the national wage agreements. Brendan Howlin of the Labour Party recently became quite animated in expressing his opinion that there was no doubt in his mind that this was of critical importance. I got the impression that anyone daring to suggest that this was not the case would be in for a good tongue lashing from anyone in the Labour Party and involved in the trade union movement.

Well I do have doubts about the degree to which National wage agreements created the Celtic Tiger. I am of the opinion that these agreements may have just coincided with the start of the Tiger but were not the cause.

I know it is simplistic to state that multinationals were the cornerstone of the Celtic Tiger but I do believe that they were central to the transition from a low wage, low skill agricultural economy to a high wage, high technology manufacturing and services based economy.

I do recognise that the Labour movement would argue that wage stability attracted these multinationals to Ireland but I think that this ignores the fact that market forces played a bigger part in determining wages and benefits in these multinationals. Does anyone seriously suggest that the national wage agreements determined what skilled technicians earned in Intel? Knowing somebody who worked there I got the impression that supply and demand for those workers had a much bigger influence.

I accept that national wage agreements did determine wages in the public sector and in large parts of domestically owned manufacturing and large parts of private sector services but are these the sectors that created the Celtic Tiger? I donft think so. I think that they got caught up in the slipstream of the Tiger but they were not the cause.

So what about the current situation? The trade union movement would like to have us believe that the economy will collapse if National agreements are left behind. I would argue that the new wave of multinationals that are the cornerstone of the current success are still driven by supply demand.

Google, EBAY, Yahoo, Business Objects, Medtronic etc will pay whatever it takes to get the required workforce. They can pay high wages because they are so profitable. They are attracted here by the low corporate taxes and the availability of good graduates. At the moment a lot of those graduates still come cheaper than their equivalent in Silicon Valley but we have long left behind the era when they were dirt cheap!


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