Dan White: Wages rise as the labour market tightens
After being crushed by the downturn, wages and salaries are rising again. With numbers in work growing strongly, Irish workers can expect an average pay increase of two per cent in 2014
THE end of the Celtic Tiger hit Irish workers hard, with even those who kept their jobs suffering significant wage cuts. According to the CSO, weekly private-sector wages have fallen by approximately 3.3 per cent since the end of 2008 while those in the public-sector are down by 5.3 per cent over the same period.
Wages in those sectors most exposed to the downturn have been worst hit.
Average construction wages fell by 21 per cent in the four years to the end of 2011 while average wages in the financial services sector dropped by almost 10 per cent in the five years to the second quarter of 2013.
Of course, the real reduction in all workers' take-home pay has been much greater than these headline figures would suggest when tax increases and the public-sector pension levy are taken into account.
With 320,000 jobs having been lost between the first quarter of 2008 and the first quarter of 2011 even those workers who have hung on to their jobs have been forced to accept wage cuts.
Now there are signs that the balance of power in the labour market is shifting back in favour of workers. Since bottoming out in 2011, the number of people at work has risen by 105,000, with 61,000 new jobs being added in the last 12 months alone.
As a result, the unemployment rate has fallen from a peak of 15.1 per cent in February 2012 to 11.7 per cent last month. Having been taboo for the past six years, wage increases are suddenly very much back on the agenda.
Last week, Tesco, Ireland's largest retailer, agreed a two per cent pay increase with its workers. This is merely the latest pay increase that shopworkers' trade union Mandate has negotiated for workers in the retail sector. Dunnes Stores, Penneys, Marks & Spencer, Debenhams, Brown Thomas and Boots are among the major retailers to have conceded pay increases over the past 18 months (see panel). Mandate is currently pursuing a claim for another wage increase on behalf of its 4,000 members employed by clothing retailer Penneys.
"The retail sector has been through a very tough five or six years. Domestic demand has collapsed. Many retail workers have had to take pay cuts, seen their conditions worsened or overtime cut back. There is now a pent-up demand from workers for pay increases," says Mandate general secretary John Douglas.
Including the deal agreed last week, Mandate estimates that it has won pay increases worth a combined €20m for its members over the past 18 months.
According to Mr Douglas, wage negotiations in the retail sector have been "very orderly".
"A lot of employers understand that their staff have been through very difficult times. They are prepared to pay modest pay increases," he says.
However, he acknowledges that while many employers in the retail sector are in a position to afford modest pay increases, not all of them are. There are still a significant number of retailers who have not recovered sufficiently to be able to do so.
"A number of employers are still in dire straits and can't afford pay increases. They have opened their books to us. You can't get blood out of a stone," says Mr Douglas.
News of the latest pay increases in the retail sector has led some business lobby groups to express alarm. Mark Fielding, the boss of small business group ISME, has warned against a revival of what he called the "partnership mentality" between the trade unions and large employers.
"While unemployment might be decreasing, there is currently no justification for wage increases in the vast majority of SMEs," says Mr Fielding.
David Fitzsimons, the chief executive of Retail Excellence Ireland, was also highly critical of trade union demands for pay increases in the retail sector, pointing out that most retailers are still struggling.
"The reality of the situation is that the vast majority of retailers are a million miles away in financial robustness terms from Penneys.
"Most retail companies are working hard to maintain wage levels and are struggling to keep their doors open. We are dealing with closures every day of the week and for pay increase demands to be made at such a fragile time in our domestic economy is highly irresponsible."
Despite the reservations of Messrs Fielding and Fitzsimons, it is clear that wage increases are now an economy-wide phenomenon. For the first time since the economic downturn began, human resources consultant Mercer is seeing across-the-board wage increases at the companies it advises.
"In the past there was a lot more difference across sectors. Some companies were paying wage increases but others weren't," says Patrick Roberson, a principal in Mercer's talent group.
That has now begun to change. In its most recent survey, published in December 2013, Mercer found that 88 per cent of the companies it surveyed expected to pay a wage increase in 2014 and that the average increase would be 2 per cent.
Mercer is also seeing other signs of a tightening labour market. Mr Roberson says that many more companies are now asking Mercer to benchmark their pay structures against those of their competitors and it is also being asked for its advice on the structure of bonus schemes.
"This would indicate greater competition in the labour market," he says.
"If the general market is paying a wage increase then it is difficult for individual companies not to."
While Mr Robertson has observed the return of across-the-board wage increases over the past year, some sectors and specific occupations are still much hotter than others. People with the right skills in insurance, hi-tech and FMCG (fast-moving consumer goods) are in particular demand. In the pharmaceutical industry there is a shortage of experienced quality assurance staff, while the financial services sector is finding it difficult to get enough people with regulatory experience.
"It is beginning to hot up for people with the right skills," according to Mr Robertson. "We are working with companies starting up in Ireland and they are telling us that it is reasonably competitive when seeking to find people with the right skills."
So are wage increases a good or a bad thing for Ireland Inc? Do higher wages represent a long-overdue injection of spending power into the chronically-depressed domestic economy or a squandering of the international competitiveness we have so painfully clawed back in recent years?
Mandate's Mr Douglas argues that modest wage increases will help boost the domestic economy. "Workers are consumers. If consumers don't have money in their pockets then they won't spend. Retailers get that."
He also points out that wage increases are coming at a time when the introduction of the property tax and water charges threaten to drain even more spending power out of the economy.
ISME's Mr Fielding begs to differ.
"The 'Partnership' mentality of ICTU and IBEC must be stopped in its tracks before we revisit the madness of the 'bubble' when our competitiveness dropped by 39 per cent due, in the main, to overgenerous pay increases."
Sunday Indo Business