Dáil Éireann debate -
Tuesday, 23 May 2000

Vol. 519 No. 5

Written Answers. - Manufacturing Industry.

Michael Finucane

Question:

77 Mr. Finucane asked the Minister for Finance if his attention has been drawn to the fact that unit wage costs in manufacturing industry may record this year their first overall rate of increase since 1993; and if he will make a statement on the matter. [14217/00]

Minister for Finance (Mr. McCreevy):

Latest available CSO statistics on manufacturing unit labour costs are for Q1 of 1999. These indicate that manufacturing unit labour costs decreased by 3.0% year on year. This follows a trend of decline which has been evident for more than a decade in Irish manufacturing and has arisen because the rate of growth in manufacturing wages has been exceeded by the rate of growth in productivity or output per manhour.

As to the outlook for 2000, it is unclear what assessment the Deputy may be referring to. However, the Central Bank in its spring 2000 quarterly bulletin is forecasting a slight improvement in unit wage costs in manufacturing relative to main trading partners in a common currency in the year 2000. As their projected rate of change in Irish wages is forecast to be in excess of that of main trading partners, they are implying that the rate of productivity increases in manufacturing in Irish will more than offset the relative growth in wages. We see no reason to disagree with the bank's view.

Some increase in wages in 2000 is inevitable given the tightness of the Irish labour market. The ESRI has pointed out that the indications are that these pressures will remain through to at least the end of 2001. The tight labour market is driving increases across the economy. If wage expectations became excessive as growth slows there will be adverse implications for competitiveness.

Added to concerns about wages growth, there are two other issues to consider. The first is the dualistic nature of Irish manufacturing where the performance of indigenous firms continues to be lower than that of leading typically high-tech sectors. A high rate of wages growth unless offset by superior productivity performance may eventually undermine the competitiveness of Irish industry. Productivity gains for the manufacturing sector as a whole arise predominantly in the leading high tech sectors. By comparison, productivity gains in indigenous industry have been relatively low. Clearly therefore any acceleration of wage growth could affect indigenous industry to a greater extent.

The second area of concern is the behaviour of sterling. While sterling is currently very strong against the euro and has hence assisted firms trading in the UK, any significant reversal of this would affect the competitiveness of Irish goods and services on the UK market.