Social partners debate priorities as economy slows down

The terrorist attacks on the USA on 11 September 2001 have added to the uncertainty that is now facing the Irish economy. The most likely scenario predicted is a short-term economic slowdown, with the economy looking set to recover in the medium term. In view of the current uncertainty, the Irish social partners have been debating their respective priorities. It remains to be seen whether the social partners can build a negotiated consensus to accommodate their priorities.

Since the beginning of 2001, predictions of an economic slowdown have been common in Ireland. The impact of the significant 'external shock' associated with the terrorist attacks on the USA on 11 September 2001 has increased the likelihood of a short-term slowdown. Indeed, it appears that the slowdown is already underway. The medium-term outlook for the Irish economy appears to be more benign, however.

ESRI review

The independent Economic and Social Research Institute (ESRI) published its Medium-term review of the Irish economy 2001-7 on 28 September 2001. The ESRI predicts a short-term 'slowdown' scenario. The main findings of the ESRI review include the following:

• while in the short term the Irish economy faces a very uncertain outlook, the economy remains fundamentally healthy. In the medium term, it has the potential to grow at 5% a year. Any under-performance in the next two years is likely to be matched by a subsequent spurt of activity, returning the economy to its trend of growth;
• in the 'slowdown' scenario, GNP growth is expected to average around 4.5% per year over the current decade;
• in the short term, economic growth rates could be much lower than in recent years, leading to a possible doubling of unemployment. However, as the economy recovers in the medium term, unemployment should fall again. It is predicted, however, that unemployment may not fall back to current levels until 2007; and
• the forecasts presented are based on a postponement of any recovery in the US economy until 2003. Under this 'US slowdown' scenario, it is predicted that the competitiveness of the Irish traded goods sector will be hit and that falling consumer confidence is expected to hit spending and employment. The forecasts are also based on a substantial adjustment in exchange rates (a large euro appreciation in relation to the dollar). This is set to have a deflationary impact.

The ESRI authors suggest that the Irish economy is 'likely to prove robust in the face of external shocks. The progress of the last decade is not a mirage and it should be sustainable, even in the face of a less benign external environment over the next few years.' It is considered vital, however, that the state increases badly needed investment in infrastructure, such as public transport, health and social housing.

Industrial relations implications: social partners debate priorities

At this stage, it is only possible to surmise what implications the economic slowdown will have for Irish industrial relations. In autumn 2001, the social partners have been debating their respective priorities in the context of the slowdown and the forthcoming announcement of the 2002 state budget in December. The Irish Business and Employers Confederation (IBEC) is concerned with protecting competitiveness by curbing labour costs and public spending, and has also called for a reduction in employers' PRSI (social security) contributions. IBEC claims that labour costs have grown faster in Ireland than in other EU countries and that in the present environment 'wage demands in the public and private sectors must now relate to the new economic reality.' Moreover, IBEC has suggested that, with the economy slowing down, it is likely that, in the coming months, some employers will invoke the 'inability to pay clause' relating to economic circumstances that is contained in the current national agreement, the Programme for Prosperity and Fairness (PPF) (IE0003149F).

The Irish Congress of Trade Unions (ICTU) has promised that trade unions will not shirk their responsibility to 'sustain the economy and protect jobs'. The new general secretary of ICTU has called on the social partners to 'work together' to deal with the challenges facing them. He has suggested that the social partners may need to establish an economic strategy group to develop consensus around policy initiatives required to deal with the current difficulties. However, it is clear that the unions' priorities differ somewhat from those of employers. While acknowledging the need to respond to recent events, the unions have expressed some concern that employers may try to use the issues associated with economic slowdown as an excuse to exaggerate the cuts in labour costs that are required. ICTU claims that the level of economic growth, government finances and employer profits is still sufficient 'to allow government and employers to honour the general commitments in the PPF'.

Furthermore, ICTU is seeking tax concessions in the forthcoming 2002 budget, targeting low and middle-income earners and amounting to IEP 846 million. These tax concessions are aimed at taking 80% of workers paying tax through the Pay As You Earn (PAYE) scheme out of the top income-tax band, and ensuring that nobody on the current national minimum wage of IEP 4.70 per hour (IE0107170F) is liable for income tax. ICTU claim that these tax concessions were promised under the PPF, and that they are geared towards the promotion of a more 'socially cohesive society'. These tax concessions are similar to those sought by Ireland's largest union, the Services Industrial Professional and Technical Union (SIPTU).

Commentary

It may be the case that in the coming months the government and the social partners can work together to reach a negotiated consensus that accommodates their respective priorities in a more uncertain economic climate. During this time, it is likely that the current model of social partnership will come under some strain as the priorities of employers, unions and workers come into potential conflict. For instance, it seems likely that there will be an increase in the number of employers attempting to curb labour costs and protect profits by invoking the 'inability to pay' clause in the PPF. In turn, unions and workers may resist such moves in order to protect living standards. Moreover, there still appears to be a widespread feeling amongst workers that the benefits of the partnership process have not been distributed fairly or equitably, and it may prove to be difficult to dampen worker expectations. In this changing economic climate, it seems likely that an updated model of partnership will be required that incorporates more flexible and contingent mechanisms of wage setting, such as gainsharing (IE0007153F), and deals with 'quality of life' issues. (Tony Dobbins, CEROP, UCD)