Wage demands from employees who have come under pressure are increasing. The risk of industrial action in some areas of the economy is growing. We’ve seen votes on industrial action in places like Bausch and Lomb in Waterford and motions at union conferences calling for inflation-matched wage increases.
Even in the 20 years of social partnership and national collective agreements, there have always been isolated collective bargaining disputes in companies. But this time around, fears of high salary demands are being driven by uncertainty about what might lie ahead, as is the increase in the cost of living to date.
Higher salary demands tend to come at times of higher inflation. This is often accompanied by economic growth. The problem this time is that inflation is rising at a time when economic growth is threatened.
The UK economy is headed for recession as household spending power shrinks. European Central Bank (ECB) Executive Board member Fabio Panetta said this week that the euro-zone economy is stagnating, but euro-zone inflation is at 7.5 percent and prices are expected to continue their upward trend.
The impact of the war in Ukraine on energy prices will intensify. China’s cycle of Covid lockdowns is expected to hamper supply chains in the coming months. And some economies are still trying to recover from the carnage of Covid.
Ireland weathered the pandemic much better than many feared. Certain sectors were hit very hard, but the economy continued to grow and order books were full for many companies earlier this year.
We’ve also had all these reports of Covid savings ready to be unleashed in a consumption glut. From early 2020 to mid-2021, household deposits – a proxy for savings – grew by €21 billion.
The central bank estimated that €9 billion to €12 billion of that was “enforced or precautionary” and would flow back into the economy in the form of additional spending in the short to medium term.
Consumer confidence fell sharply in February and March as the missiles landed in Kyiv. The savings are still there.
Despite the uncertainty about the duration of the war, wage settlements are agreed.
This week, the union of bank employees FSU agreed with AIB a 10% salary increase over three years. The Irish Trades Union Congress (ICTU) before invading Ukraine proposed that workers in the private sector should aim for wage increases of up to 4.5 per cent this year.
Public sector unions triggered a collective bargaining clause in their latest wage deal that will see the government sit down and discuss wage increases above the 1 percent agreed last year and beyond this October. Every 1 percent wage increase in the public sector costs 250 million euros a year.
Wages in the economy had been rising before the inflationary crisis triggered by the Russian invasion of Ukraine. But for many people, the increases weren’t nearly enough to offset higher rents, home prices, or utility bills.
With the exception of a few professionals and software developers, who demand raises of 25 to 30 percent in order to move to other companies or just stay there, negotiated wage increases are usually between 1 and 3 percent per year.
If you go back to the time of social partnership and collective agreements, the picture looked very different. The 1991-1993 contract included 10.75 per cent over three years as Ireland began to catch up with other European countries in terms of economic development.
1990s wage deals were limited to about 8 percent over three years, but that changed in the 2000s, when later deals peaked at 13 percent over three years from 2003-05.
The social partnership served to support the transition in the economy from below the EU average to well above it. But politicians and social partners became addicted to the formula, which grew too big and included commitments on everything from welfare and education to health spending.
It took a collapse of the economy, the banking system and the treasury to finally bring it down.
Ultimately, all sides of the social partnership were soiled in the painful years of the crash and the IMF bailouts that followed.
The economy has performed well since the crash. We have more people than ever before and without national collective agreements the roof has not collapsed.
So far, the real need for higher wages to combat inflation has not led to large-scale industrial action. But people have reasonable expectations of being able to pay their bills and how they should be financially rewarded.
Post Covid, the balance of power between employers and workers has tilted in favor of workers. Labor shortages, working from home and talk of a major layoff showed that workers had better cards and were in a better negotiating position.
Bosses have taken a “soft, gentle” approach to luring employees back into the office. Converting these benefits into higher wages will only work as long as the companies themselves grow and make decent profits. Perhaps the entire remote work experiment is just one recession away from being reversed.
Companies that can handle paying higher wages will spend money if necessary. But as the broader economic threats become real and the picture worsens, calls for wage increases to protect people’s living standards will fall on deaf ears.
Housing played a central role in the last dramatic turn in our economic fortunes 14 years ago. In the meantime, if governments had resolved the housing crisis, many workers would be better equipped to weather any economic storm that might come.
https://www.independent.ie/opinion/comment/fears-of-big-pay-demands-are-being-driven-by-the-uncertainty-of-what-might-lie-ahead-41623674.html The fear of high salary demands is driven by the uncertainty of what might lie ahead