Friday 21 October 2016

Expect the Coalition to loosen the purse strings as they chase votes

Published 28/05/2015 | 02:30

When the IMF’s Ajai Chopra and the rest of the Troika turned up in Dublin in 2010 both worry and stress became more common than happiness and enjoyment
When the IMF’s Ajai Chopra and the rest of the Troika turned up in Dublin in 2010 both worry and stress became more common than happiness and enjoyment

It is often said that money doesn't buy happiness. Alas - and no matter how much one might wish it to be true - it simply isn't so. Money matters when it comes to contentment.

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Countless surveys the world over show that there is close connection between life satisfaction and income. Even more marked is the effect of losing money. Studies show that losing a given amount of money has a bigger negative effect on how you feel than the positive effect of gaining exactly the same amount (this is known in the jargon as "loss-aversion bias").

All this is to be seen in the world of work and remuneration. Economists have long known that wages are "sticky" to the downside. In other words, people are very hostile to a reduction in their cash remuneration. Employers know this, and in tough times they usually prefer to cut overall wage costs by laying off some employees rather than cutting all workers' pay.

That is mostly what happened in Ireland's private sector during the crash. While an unprecedented one-in-six private sector jobs disappeared, gross wages and salaries fell by much less (of course, with the taxman sticking his hand deeper into the pockets of those fortunate enough to keep their jobs, after-tax incomes did fall by much more).

But just as the crash had only a limited negative impact on average gross salaries, the recovery has had a limited positive effect.

Three months ago, figures for the end of last year showed the first decent hike in wages since the jobs market turned around in 2012. It was this columnist's hunch that the uptick heralded the beginnings of a return to more normal times in employee remuneration.

Happily, the latest pay figures give some reason to support that case. Tuesday's report from the CSO showed average hourly private sector pay in the first quarter of the year was at its highest since 2008. Another measure - average weekly earnings - were also up on the same period a year ago.

I say that the latest figures give only 'some' evidence to support the case that better times have arrived because the increases in early 2015 were smaller than in late 2014. Nor were the numbers big. For instance, average hourly earnings in the private sector stood at €20.41 in the first quarter of the year, up by less than 1pc in 12 months. Even with negative inflation pushing down the prices of consumer goods and services, this is not strong real-terms pay growth by historical standards.

There is some evidence that people are getting fed up waiting for the recovery to show itself more markedly in their incomes. Amárach, a market research company, has been gauging the national mood since the economy went into free fall in early 2009. Each month they ask 1,000 people a range of questions, including their views on the economy, their own financial situations and how content (and discontent) they feel.

Amárach's "recovery index" is compiled by getting views on how strong people believe the recovery to be. Views started to get sunnier exactly two years ago. Over the following 18 months, until late last year, there was an almost uninterrupted increase in optimism. But then, quite suddenly, it started levelling out, as the balance between those who were upbeat and those who were downbeat stabilised.

The latest poll - published on Tuesday and taken in the middle of this month - actually shows a small increase in gloominess across almost all questions asked, including how strong people believe the recovery to be.

What explains this at a time when almost every economic indicator is pointing in the right direction and Ireland is "the fastest-growing economy in Europe"?

Here again, Amárach's taking of the national mood offers answers. Among the questions it puts to people is whether they have felt different emotions the previous day (happiness, enjoyment, stress and worry).

More than half of those asked in almost every monthly survey over six years have said they felt happy the previous day. Even more reported having moments of enjoyment. Both happiness and enjoyment were almost always more common than worry and stress (the only exception was when the IMF's Ajai Chopra and his technocrat chums showed up in Dublin in late 2010 to bail Ireland out).

But something curious has been happening over the past six months or so. Respondents have been reporting fewer of all emotions, both good and bad. It could be that as times normalise, the heightened emotions associated with crisis wane too.

All this is important not just for what it says about the Irish soul. The fall in happiness is likely to matter a lot for politics too.

Instead of a feel-good factor, the Amárach surveys suggest that the opposite could be taking hold, probably because people assume that with so much talk of recovery, others must be gaining and they are being left behind.

If that is the case, and with so little time left before the next election, the Government parties might start to get desperate. And there are already signs aplenty of pre-election wheezes designed to curry favour with voters.

Public sector pay is going up. However unwise the government is to capitulate to "restoring" bubble-era pay levels, 300,000 people who work for the Government will be seeing more money going into their bank accounts before the next election.

A similar number of people have variable-rate mortgages. Most of them are set to see repayments shrink over the coming months as government pressure - justifiable in this case - on the banks to bring lending rates closer to eurozone norms bears fruit.

Add in whatever giveaways come in the budget to these factors and it is very likely that a lot more people will feel better off over the next year.

Whether a widespread feel-good factor kicks in before the next election will in no small way determine the outcome.

Irish Independent

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