Oireachtas Joint and Select Committees

Tuesday, 24 October 2017

Joint Oireachtas Committee on Jobs, Enterprise and Innovation

Cost of Doing Business in Ireland: Discussion (Resumed)

11:00 am

Dr. Tom McDonnell:

I would be happy to do so. The first thing to note is that we now have 2016 data as well with which I am happy to update the committee. According to EUROSTAT, total average hourly labour costs, for industry, construction and services, that is, traded sectors, which excludes public administration, defence and so on, is €30.40 in 2016. The euro area average is a figure of €29.80, so we are broadly on a par. It is interesting to note that the most expensive countries by labour cost are Norway, at more than €50.00; Denmark, at €42.00; Belgium, at €39.00; Sweden, at €36.60 and so on down. It turns out that there is a correlation between the countries with the highest employment rates and the countries with the highest labour costs. Let me read out a few numbers, and then I will talk about the employer pay related social insurance, PRSI.

The country with the highest employment rate in Europe is Iceland. For people aged 20 to 64 it is 87.8%, an astonishingly high number. This is followed by Switzerland at 82% employment, but then we start getting to the Nordic countries. Sweden is at 81.2% employment and Norway is at 78.6%. Germany is also at 78.6%. Denmark is at 77.4%, and so on. Ireland is at 70.3%, and this is in the context of people talking about overheating. We still have a way to go, but to get from our 70% to a figure of 80% implies adding an extra job for every seven jobs we have at the moment. That is in the region of a quarter of a million jobs.

Ireland is failing in terms of its labour market policy. It is not failing because of high labour costs, because we can see that the most successful countries, in terms of employment rates, are actually the high-cost ones. Labour costs differentiate from wages because of employer PRSI and other employee compensation.

Tax was discussed earlier. Labour taxation in Ireland in a strict sense is about average in European terms. However, on a ranking by labour taxation which includes social security contributions Ireland is very low. In particular, 60% of the difference between Ireland and the average high-income Western European country, of which there are ten with a GDP per capita over €30,000, is explained by employer PRSI alone. In Ireland, we have low levels of employer PRSI, and indeed PRSI across the board, and that means that Irish labour costs are that much lower than they would be in Nordic countries, for example. It also means that the social wage is that much lower. The benefits that workers receive are not the same. People will talk about labour costs and employer PRSI, but the question then is whether it is desirable to move towards the Nordic-type model. We find that across the board, in terms of inequality, poverty and deprivation, employment, gender wage gaps and female labour force participation, those countries tend to do much better than Ireland.

Everyone talks about child care. It is true, child care is a huge barrier in Ireland to second earners and lone parents, who are primarily women.

However, it is also the case that there is a large safety net in the Nordic countries that enables people to move in and out of the labour force, to go back to education and so on. It is a different model. It would be expensive to do, and it is certainly not something that one could do overnight, but it strikes me as something that would be attractive over the medium term. We know that in the future, because of automation and an economy that is increasingly speeding up, with more and more jobs becoming obsolete, it becomes more important for people to be able to step out of the workforce, to go back to education and to retrain in new things. That strikes me as a better model in the long term. I do not know if that answers the question.