Sunday, 2nd March 2008

WAGE RESTRAINT ESSENTIAL FOR ECONOMIC COMPETITIVENESS

The Irish Hotels Federation (IHF) today called on the Government to secure economic competitiveness by ensuring that any future reviews of the National Minimum Wage (NMW) are negotiated as a part of the National Agreement “Towards 2016.” It states that Ireland’s price and wage competitiveness is deteriorating and undermining economic growth. This situation is more difficult as a result of adverse exchange rate movements, which in the last year saw the Euro, strengthen by more than 12% in our two largest foreign markets –the UK and US.

The IHF states that, for the Euro area as a whole, the annual labour cost increases for the four years below were between 1.2% and 2.8% compared with the Irish performance of 3.9% and 5.1%. Over the last decade, Ireland has lost cost competitiveness with the Euro economies mainly through relatively high wage increases.

Labour Cost Per Employee: Private Sector: Various Countries: % increase:2005-2008

Source OECD

John Power, Chief Executive, IHF, speaking at the IHF’s annual conference in Kilkenny, states as the Euro remains strong improved cost competitiveness can come about only through appropriate levels of domestic prices and labour costs. As many costs are externally determined such as energy and interest rates a larger burden falls on labour and non labour costs which are within domestic control.

The IHF states that all the reviews of the Minimum Wage since its introduction in 2000 were completed outside National Agreements.  The IHF is clearly saying that this process cannot continue and failure to agree a review of the NMW as part of the national agreement should be a deal breaker. Recent practice saw the NMW being referred to the Labour Court to make a recommendation to Government.  

According to Mr Power, the delivery of a structured programme of national wage adjustments has to be a key priority of the National Social Partnership Agreements. It is imperative that improving and maintaining national competitiveness are the essential criteria in considering any wage adjustments.

            “We agree with the Central Bank’s comments in January which raise the concern that relatively high non-labour cost increases are continuing to exert significant competitiveness pressures and that pay developments in the coming years must take account of the need to remain competitive. We are operating in a changing economic environment where there is a greater reliance on exporting sectors of the economy of which, tourism is a significant aspect. Many of our costs are determined by external factors such as energy, so the burden for control of costs falls on labour, particularly given the labour intensive nature of the hospitality sector where labour costs can exceed 40% of turnover,” says John Power. “We are striving to remain competitive in an environment where wage increases in Ireland have substantially outstripped those of European economies and thus reduced Irish tourism’s cost competitiveness.

Recent NMW revisions were based on recommendations by the Labour Court, which does not have to explain or reconcile its decisions with the objective of maintaining competitiveness in the Irish economy.  The IHF believes that the Labour Court is not the appropriate vehicle to determine the national minimum wage rates and that its recommendations should not be allowed to recommend wage increases in excess of those generally agreed  under “Towards 2016”. 

The Federation warns that, if this practice continues, it will further undermine the competitiveness of labour-intensive industries, such as the hospitality sector.

“The Irish hospitality sector is particularly vulnerable to wage increases as payroll costs represent a much larger percentage of turnover than in other industries. Over the last twelve years the labour costs as a percentage of turnover have grown from 28.5% in 1995 to over 40% in 2007. In future, if national partnership is to have any meaning, the review of the national minimum wage must be part and parcel of any general wage agreement and not referred to the Labour Court as has been recent practice,” states Mr Power.

The IHF also cited concerns expressed by FÁS in its Irish Labour Market Review 2007 where it suggested that, whilst the high minimum wage in Ireland is attractive to EU workers and acts as an anti-poverty measure, an excessively high minimum wage resulting in higher unemployment would prove counter productive.  FÁS recommends that, in light of a projected slow-down in growth, the appropriateness of the NMW lever should be regularly assessed, taking into account the impact on competitiveness, unemployment, migration and poverty. 

“It is important that we remain competitive, and it is essential that national wage agreements and the State processes are responsive to the reality of shifts in Ireland’s economic situation – a process that doesn’t incorporate our National Minimum Wage is lacking in our view,” states Mr. Power “Continued increases in the statutory minimum wage, exceeding those agreed in the National Agreement, will continue to have a significant negative impact on competitiveness in our sector.”

The Government increased the National Minimum Wage to €8.65 per hour in July 2007 (a 13% increase from the rate set in April 2005). This positions Ireland as having the 2nd highest minimum wage in the EU - Luxembourg at €9.06 has the highest minimum wage rate. In a competitive international tourism environment, Ireland’s wage costs are frequently compared with countries such as Spain and Portugal where the national minimum wage rates are €4.04 and €2.87 per hour respectively and the equivalent of €7.36 an hour in the UK.

The IHF represents over 1,000 hotels and guesthouses throughout the country. Its members employ 60,000 staff.

ENDS

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