Although some of the fine print has still to be worked out, the foundations of a new National Agreement are now in place. The terms of the deal are along predicted lines with a wage increase of 15 per cent over 33 months. This is in the middle ground between what the unions were demanding and what the employers were prepared to countenance. The wage increases are higher than orthodox economists would like and significantly higher than the terms of Partnership 2000. But, in all the circumstances, they do not appear unreasonable.
While the employer side has done well out of Partnership 2000, the unions came to the negotiating table with their members nursing an understandable grievance that their pay had not kept pace with the economic boom and with increases in productivity across many sectors in the economy. The economic landscape has changed utterly since the last Partnership deal was negotiated; at that time a wage increase of 7.5 per cent over 33 months was enough to buy industrial peace. On this occasion, the employers facing labour shortages in some key sectors had to deliver substantial pay increases. For their part, the unions had to deal with the higher expectations of their members; the new National Agreement is by no means perfect, but it is still a price worth paying for industrial harmony.
For all that, there must be some concern that wage increases of the type agreed in the new deal will trigger further inflationary pressures and damage the competitiveness of the economy. Irish inflation at 3.4 per cent is now the highest in the EU while the kind of wage increases agreed yesterday are two to three times more generous than what is on offer in the economies of some of our main trading partners.
There will be wider fears that the National Agreement will be an additional contributor to the gradual overheating of the economy. Taken with the net increase in take-home pay in the budget, the economy is being stimulated at a time when growth is already at a record level. The signs of overheating are evident in surging property prices, the infrastructural deficit and the labour shortages now evident in almost every sector of the economy. There is cause for some concern that this National Agreement could finally tilt the economy into a downward cycle.
On balance, however, it would appear that the economic boom can be sustained - even allowing for generous pay increases. As our Economics Correspondent notes in today's editions, the pay element is broadly in line with assumptions made in the ESRI's mid-term review; this predicted that the economy would continue to grow at around 5 per cent per year. There are risks involved in the new National Agreement. But the benefits - a relatively peaceful industrial relations environment - make this risk worthwhile.