Some election campaign promises are best discarded. The Irish government unveiled measures on Tuesday with the creditable aim of stimulating private sector job creation. It is good to see policymakers in Dublin focusing on the real economy after two and a half years of banking horrors. Yet whatever the benefits of the measures – boosting a jaded and overpriced tourism sector is an excellent idea – the government has missed an opportunity to address wider distortions in the labour market that are costing Ireland dear.
Job creation is an urgent issue. During the boom years, the Irish unemployment rate fell, reaching 4.4 per cent in 2007 thanks to soaring inflows of foreign direct investment. Now, it is reverting to historical levels: 14.6 per cent in April this year. A third of men aged 20 to 24 are out of work.
In those circumstances, policy should be geared to sweeping away a plethora of lingering labour market rigidities. The jobs initiative includes a welcome reduction in social security contributions for companies employing low-paid workers. But that is offset by an unwise decision to reverse a €1 an hour cut in Ireland’s minimum wage, which had already been agreed by parliament.
Much is made of Ireland’s flexible labour force. It is a bit of a Celtic Tiger myth. The employers’ federation reckons that excessive regulations on working conditions mean the cost of employing workers in the Republic is up to 25 per cent higher than north of the border. Cutting the minimum wage is not about impoverishing the lowest-paid; it is about restoring competitiveness at an exceptionally difficult time. Reversing the agreed cut will restore the Irish minimum wage to €1,499 a month – higher than in France and as well as Portugal’s €485. Ireland is not three times richer than Portugal.
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