Over the past two decades, social partnership agreements have served the State well. The numbers at work have increased by one million people and the incidence of industrial disputes has been greatly reduced. Pay increases combined with tax cuts have raised the real incomes of those at work and enhanced certainty has improved the environment for business planning and investment. It is important that these gains be preserved at a time when economic conditions are deteriorating.
The latest stage of the partnership process commences today when the Government is expected to invite employers, trade unions and other social partners to talks on the next pay phase of the current 10-year agreement Towards 2016. The first phase of the agreement provided for pay increases of 10 per cent over 27 months. Negotiating the second phase is certain to prove difficult.
The prospect of a recession in the US is casting a long economic shadow and, at home, the domestic boom has run out of momentum. The economy's difficulties have been compounded by a sustained loss of competitiveness due to excessive inflation and a strengthening euro, and by a slowdown in the rate of productivity growth.
In order to revive the rate of economic growth and to safeguard employment, there is a pressing need to restore competitiveness and to improve national productivity. Restraining pay growth is a necessary, though not a sufficient, condition for improving competitiveness. However, calls for pay restraint will cut little ice with the trade union movement. They will argue that the purchasing power of the 10 per cent pay increases being delivered under the first phase of the current agreement has been virtually eroded by a higher than expected inflation rate. In the past two years, average consumer prices as measured by the consumer price index - which includes mortgage interest - have risen by 9.6 per cent.
Breaking this impasse may require direct Government intervention. In objective economic terms, unless competitiveness is revived, jobs will be lost in increasing numbers. Such an outcome is in nobody's interest. Regaining cost and price competitiveness necessitates shadowing rates-of-pay growth among Ireland's trade rivals.
Enhancing the living standards of those at work requires growth in take-home pay that exceeds inflation. In the first instance, Government can supply the missing ingredient by undertaking to cut taxes on employee incomes in forthcoming budgets. More specifically, it can honour the programme for government's promise to reduce rates of employee pay-related social insurance (PRSI) on a phased basis from four to two per cent during the lifetime of the current administration.
In the second instance, productivity growth raises real wages. The Government and the social partners must make a real effort to stimulate productivity growth by raising levels of workplace training. Too often, lip service has been paid to productivity enhancement as the issue of skills development slid off the policy agenda.