Wage cuts will deepen crisis, warns economist

WAGE CUTS will damage our competitiveness and the economy, not help them, a leading economist has warned on a new website established to give a left-of-centre view of the economic crisis.

Paul Sweeney, economic adviser to the Irish Congress of Trade Unions and a member of the National Competitiveness Council, is one of the first to be published on the new site – Progressive-economy.ie. The website is run by the think tank on social change, Tasc.

In his article, Mr Sweeney argues the “real competitiveness issue” is not labour costs but the fact that “we do not have a functioning banking system”.

He says the “remarkable barrage of calls for pay-cuts, from both orthodox economists and the ‘pop-economists’ as the solution to our economic problems, in the mainstream media, without any alternative views, demonstrates that real solutions to our immense economic problems are further away than we thought”.

He says the lack of credit flowing to businesses underlines the general lack of confidence.

“And we do not know how much the blanket banks guarantee will ultimately cost Irish taxpayers. This is the real issue everyone is talking about and it is the real competitiveness issue. Wage costs are nothing compared to getting over this enormous economic hump!”

He says the next most important issue around competitiveness is falling demand.

“If you cut wages domestic demand will fall further. It is falling already as people save and some lose their jobs.” International demand is falling already and so exporting is getting even more difficult.

“The answer is a major international stimulus. So far this is not being tried at the level required in Europe. But to cut just wages in Ireland in an effort to stimulate exports will not succeed. It will exacerbate our economic problems.”

Though Ictu has agreed to a wage cut for public sector workers, Mr Sweeney argues that to cut wages among middle and low earners in the private sector would impose serious hardship on the working poor and many middle-income people.

“The huge gap in revenue and public spending does mean that total labour costs, the main component of current public spending, will have to be addressed – but innovatively, fairly and rapidly.”