Competitiveness will be shaped by how firms respond to wage demands

Price rises, in particular with regard to anything to do with energy, are on the increase. These increases are said to be sparking a new inflationary spiral with wage demands following the cost of living. Experts are now arguing whether these demands are going to cripple Ireland’s competitiveness in a global marketplace.

Coming fast on the heels of the regularisation of corporate tax, there are worries that Ireland will become too expensive a country to do business in.

Adrian McGennis, chief executive of Sigmar Recruitment Consultants, is definitely wary of the wages spiral. Everything, he says, points to the fact that it has already started.

“Often the word ‘unprecedented’ is overused but the demand for talent at all levels now is unprecedented. Retention bonuses, counter offers, bounties, new share schemes, flexible benefits. These are all everyday topics in any growing company, particularly in technology.

“In addition, cost inflation is becoming evident, so pressure on salaries is here for the foreseeable,” he says. “Salaries in most sectors are driven more by wants than needs. If people can earn more they tend to avail of it. In addition, the steady increase in buying/renting accommodation has offset the reduction in working/travel expenses.”

Higher rates

He sees some sectors hurting more than others, such as retail or construction, having to pay higher rates as people are leaving the sector. “Whereas sectors like IT have huge demand because they continue to grow and attract investment.”

James Ring, chief executive of Ingenium Training and Consultancy views the situation differently. He doesn’t see the upward spiral as a given. He agrees there will be initial request and rises but many companies, in particular the smaller SMEs, will not be able to afford them.

“Covid has depleted their funds which may result in staff attrition, but I can’t see them going out of control. There may be some ‘merry-go-round’ of professional staff, but it would be better for everyone if we avoided such shuffling. I think in the long term we will be okay.”

One consideration to calm the potential spiral is to look to the EU for staff, in particular to attract a migrant European population for retail and restaurant jobs.
"Easing of travel restrictions will make it easier and utilisation of remote workers in the EU and outside will increase, so again Ireland needs to continue to lead this process to win our talent battles," says McGennis.

He views flexibility as key to keeping costs down.

“Smaller companies (SMEs) have been more agile in offering flexible or hybrid work and gained some ground on large multi-nationals. Many sectors should take the opportunity to look at their whole talent supply chain, and consider the types of roles, apprenticeships, contractors, outsourcing, etc, to design a sustainable talent pipeline for the coming years.  For example, in our sector, recruitment, early signs are very positive for the nascent apprenticeship programme, for the employee and the businesses.”

Complacent

As for FDI, both McGennis and Ring share the opinion that wage increases will not negatively impact this sector.

McGennis says that wage increases are global and certainly evident in the countries that we compete with for FDI. Across professional levels, the increases are as stark in the country of origin, mainly the US, and also in other countries that attract FDI.

“This is not to say we should be complacent. We should at least keep the rates of increase in line with competing countries,” says McGennis.

Ring agrees. “Ireland’s wages aren’t cheap anyway, and since inflation will happen all over the world, Ireland won’t be an outlier.”

Again, both commentators’ views converge when it comes to supporting SMEs as a means of maintaining stability. McGennis argues that local SMEs also need support.

“We still don’t really encourage risk. Corporation tax for SMEs is at a fair point, but many are not that profitable, but still pay high tariffs on employment taxes, VAT, capital gains tax, stamp duty, bureaucracy and rates which increase the risk to the business even surviving.”

Ring sees Ireland’s long-term success as rooted in growing indigenous companies. “Sometimes we fawn over FDI and get all excited when a foreign company announces X number of jobs. We don’t applaud indigenous companies the same way. I believe we need to support the Irish more.”