Wages ‘should’ rise, but why and how?

Ged Nash recently said that ‘wages should rise‘ as a way to give some relief to hard pressed middle income earners. This is an unusual stance given that Mr. Nash is a financially unaffected third party to this and has no idea of the situation many companies are in which more about a state of tight cashflow management and deleveraging.

Why should wages rise? With unemployment still elevated at well over 11% there is still enough excess capacity in the labour market to ensure wages don’t rise except for in industries with a constrained supply of workers or a skills gap, such as IT is experiencing at present.

Other than that, wages are unlikely to naturally rise because you can replace a worker for today’s market clearing prices (current wage), although that doesn’t always happen as people are not widgets, but the general thesis holds. If placed between two propositions of workers with similar skills you can opt to take on an extra person on a ten person team rather than give the ten people a ten percent wage increase.

The other issue is that SME’s hiring doesn’t imply that there is additional income to the firm remaining to give the incumbents a wage rise, they may have hired a person that they had needed for a long time and been grappling with unrealistic workloads prior to taking on the new hire.

Perhaps most cynical of all is a member of a party geared towards workers rather than job creators make such a statement as his bias has been unquestioned or interrogated for factual foundation. Equally, in the current tax environment more wages are likely to equal more taxes for the state so who wouldn’t want to see more tax if it means more income for them? In that respect almost every member of Government likely (although perhaps not publicly) agrees with these sentiments.

It would make far more sense to give the productive sector less tax to pay and to abolish the deeply unfair USC which is the permanent ugly stepsister of the ‘temporary’ Health/Income levies.

This is tempered by a sentiment that this should occur due to increases in productivity, but sometimes that productivity gain is the thing that kept the firm open and doesn’t imply extra profit remains. As well as this, we took painful steps to regain our competitiveness, wage increases, in particular at a time of rising house prices is a bad dynamic to feed into, there must be some restraint and it won’t come from the Irish Central Bank as they don’t set interest rates.

This call for wage increases is empty and perhaps even cynical, at a minimum it’s populism, and comes as Joan Burton says she won’t support any tax credits aimed at people with children (because to use them you have to work).

 

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