Wages and Ireland's International Competitiveness
At the beginning of the crisis in 2008 it was a widely reported view that Ireland had become uncompetitive, leading to calls for wage cuts. Since then wage rates in the private sector have been largely stable. However, Ireland has shown a strong improvement in exports despite a difficult international trading situation. This presents a puzzle. If wages in Ireland were uncompetitive, how could Ireland improve its export position so rapidly, without a general fall in wages?
Ireland can best be described as having moved from a position of ‘super-competitiveness’ to ‘competitiveness’. During the construction boom, exports remained an important driver of growth. Increases in nominal unit labour costs were driven by a general increase in inflation, rather than the labour market. Since 2008, the fall in nominal unit labour costs is almost entirely due to a move away from the labour intensive construction sector. However, while labour costs have been stagnant in Ireland, they have increased amongst our trading partners.
(An inBrief version of this research is also available here.)