Tuesday, 6 March 2007

Why the jobs are going

So the jobs carnage in our internationally-traded sector continues unabated, with Proctor & Gamble just the latest in what will be an ongoing trend. Uninformed and so-called independent commentators (i.e. from banks and brokerages who are paid to talk up the economy) will tell you that the overall level of employment is constant, if not rising. Correct as far as it goes – which isn’t very far. In fact the Irish economy is suffering from severe structural problems that are only set to get worse.

The foundation of the Celtic Tiger has always been the internationally-traded goods and services sector. This is what brings the wealth into the country and on which almost everything else depends. The loss of jobs in this sector has been masked by huge increases in the public sector, construction and general services. We can build houses, open restaurants, sue one another till the cows come home and have one policeman for every 10 citizens. But ultimately it’s gotta be paid for, and that’s where the international dimension comes in.

And we’re failing internationally because our costs are too high. Where is the price pressure coming from? Why, no surprise – the public sector. Apart from property - gas, electricity, education, health and local charges are the spur. These costs occur because of massive increases in the public sector pay bill, in the absence of any meaningful productivity improvements. Quite simple, this makes it increasingly difficult for firms to compete against lower cost countries internationally, hence the exodus.

The new report by Micheal Martin Tomorrow's Skills: Towards a National Skills Strategy says all the right things, but it won't work due to the other disconnects. It’s a mantra, but true for all that, that our future prosperity depends on technology-based innovation. But our governments do everything to undermine that goal.

Why do most top students pick law, medicine, veterinary and pharmacy, at the expense of the engineering, science and technology disciplines? Quite simple, that’s where the money and security lie. The average income in the legal profession, from raw junior to top barrister is €164,00 p.a. The other professions mentioned attract similar pay levels, with ample opportunity for tax dodging. Few engineers or scientists will ever reach this income level, and in fact will work in environments where their jobs are never 100% secure.

Why are the ‘professions’ paid so highly? Because they are not competitive in any meaningful way due to a self-interested stranglehold on (a) numbers entering at one end, and (b) a stranglehold on services offered at the other (e.g. only lawyers did conveyancing). There has been some tinkering around the edges, but that’s all it is. So the goose that’s laying the golden egg is wheezing, but with an election coming up, don’t expect anything but fine words.

Then what about the other tsunami heading in our direction - the property/debt bubble? The country is skating on thin ice, supported by an ocean of debt. This bubble is going to burst sooner or later and the landing is likely to be hard rather than soft. Government revenues are precariously dependent on stamp duty - which in turn is dependent on the property binge continuing. Which it won't. And by dramatically increasing both the numbers and pay levels in the public sector, and paying social welfare rates higher than anywhere is Europe, the government has created a rigid set of fixed costs, financed by a volatile and unstable revenue base.

We're in for interesting times.


James McD. said...

Why is the public sector always the main target? Who provided the education and infrastructure that enabled the Celtic Tiger?

Anonymous said...

LOL - J McDaid says the public sector created the wealth. Hilarious.