Economic Performance EMU Fiscal Policy

There is a Better, Fairer Way (ICTU)

ICTU has released its 10 point set of recommendations: you can find the document here.

I am interested in the readership’s comments on this document, which will be an important input into the next round of social partnership talks.

6 replies on “There is a Better, Fairer Way (ICTU)”

Ok, I’ll have a go.

“Ironically, a currency devaluation would be more equitable, as it would reduce living standards for everyone, not just workers.”
Wouldn’t a currency devaluation disadvantage the lower paid more because imported inflation on energy/petrol prices etc. would hurt them more?

Points 1 and 2 are very aspirational.

3. “the most immediate threat to our competitiveness comes from the weakness of Sterling, not wage rates. This accounts for about two thirds of the deterioration in recent months. ”
66%? Did I miss something? Then, in the same point they say we are over-priced because of “Failure to pass through gains from a weakened Sterling”. Having their cake and eating it?

4. “But the state of the global economy is such that wage devaluation is unlikely to have much impact on exports, whereas it will seriously depress domestic demand” Yes, but domestic demand is consuming imported goods because of our high exchange rate and cost base isn’t it?

5 Taxing income from capital the same as that from labour. Does that mean DIRT tax @40%? I suppose Keynes would approve, might dissuade the paradox of thrift. The rest of the points here have been well flagged in the past, although Hospital co-location being dressed up as purely a developer opportunity is a little disingenuous.

6. This is a non-point. Just calls for a renegotiation of the NPA .

7. “the weakest suffer, while the wealthy contribute nothing.” Nothing is perhaps an understatement, but they know their audience, although I agree that the pension levy is a blunt instrument.

8. Are they looking to have the state fund private pensions too?

9. Fair point.

10. Economic War Bonds? Fair enough. Do we trust the government enough though?

It’s an interesting mix of a few sound ideas, accompanied by their usual song and dance about ‘the wealthy’ not contributing.
The ‘national recovery bond’ idea is quite interesting. I remember someone here mentioning something very similar in Singapore, did that do much good there?

On Point 1: to the extent that the unemployment is structural, it makes sense to engage in intensive retraining. Obviously there will never be jobs for all those construction workers, architects, conveyancing solicitors and estate agents again. The same may well apply to unemployed manufacturing workers. But for some occupations, the unemployment is cyclical, and in the current circumstances, huge expenditure on retraining them is not justified. Targetting is key.

On Point 4: The Pay Agreement should be abandoned in my view. I do understand the unions’ reluctance to let profitable employers earn windfall profits from the situation, though. Maybe some mechanism such as requiring profitable employers to make extra contributions, equivalent to the pay increase, to a pension fund would help? The reason the Pay Agreement should be abandoned is because of the sense that those private sector workers who haven’t lost their jobs are actually doing better than before the crisis because of a combination of the Pay Agreement and deflation. Of course, there are private sector workers who’ve had their pay cut too, but there’s still a sizable and very visible proportion for whom this isn’t the case (think ESB). Union leaders are saying that IBEC is advising members not to pay the increases, no matter how profitable, so this may be moot anyway.

Distribution of pain is a real issue at this stage, because it is possible that the unequal distribution implied by the measures introduced so far will cause such social unrest that it will all collapse around our ears. For the same reason, I’m in favour of capping the pay of bankers, as suggested.

Point 5: I agree with much of their stuff on taxation. I think intentions on tax should be announced and, partly at least, brought forward, not least because it would demonstrate that high earners will be paying lots.

Point 7: I agree that the pension levy is a “straightforward pay cut”. It should be. If all workers were having pay cuts, it would be much easier for public sector workers to swallow. Instead, we’ve ended up with a ‘pension levy’ that makes it look like they’re (ahem, we’re) just being belatedly asked to pay for our generous pensions, which, since they don’t apply in the private sector, has no implications for pay there. (This, in my view, is because of the misguided stance the unions took on the negotiations – ruling out pay cuts ex ante – a point I made in an email rant to my own union’s leader.)

I do note, however, that they’re not calling for it to be revoked.

Point 10: I too like the bond idea.

ICTU’s behaviour is like an opposition party rather than like a social partner. They are against the government proposals, but there are no counterproposals on the table. Instead, there are slogans and sums that do not add up.

If, for instance, one wants to cut 2 billion euro from the public pay bill; and exempt those on low to mid pay, then the top earners’ pay should be cut by more than 100%.

Energy prices are too high, but the ESB was right to increase wages, and the electricity market should not be opened to competition.

Competitiveness should be improved, but wages should not be reduced and worker protection enhanced.

Sterling is to blame! The government was wrong to nationalise Anglo-Irish. It should have bought the Bank of England instead!

And so on.

This ICTU plan cannot be taken seriously.

The potential adverse effect of wage restraint on domestic demand figures prominently in ICTU’s discussion of the crisis. The document claims that ” . . the state of the global economy is such that wage devaluation is unlikely to have effect impact on exports, whereas it will seriously depress domestic demand”.
It is interesting to recall that in the 1930s FDR believed that higher wages and prices would help cure the Depression by boosting demand. So his administration had the National Industrial Recovery Act (NIRA) passed in 1933. This exempted industries from prosecution under the antitrust laws if they agreed to enter into collective bargaining agreements that significantly raised prices and wages.
Cole and Ohanian (JPE August 2004) claim that the NIRA resulted in workers obtaining salaries “about 25 per cent above what they ought to have been, given market forces. The economy was poised for a beautiful recovery [sic!], but that recovery was stalled by these misguided policies.”

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