Employers and government officials who preach voluntary wage cuts these days are asking many ordinary workers. Do not go crazy looking for pay rises, they say. You will make inflation even worse for all of us.
But when you think about the profitability of some prominent companies at the moment, and the growing waistline of some of the best cats in charge of the boardrooms, it becomes more difficult to find objective lines to workers and unions who ask: why should we be the ones to suck up all?
Politicians need to start giving better answers to the workers than putting the responsibility on their shoulders for a phenomenon – inflation – for which they are more victims than perpetrators. Real wages are falling rapidly and this cannot continue in a labor market characterized by labor shortages. Employers, of all people, need to understand the dynamics of supply and demand given that they tend to use it often enough as an excuse for their own pricing in the market. Restraint is then often lacking.
No matter where one sits on the political spectrum, it seems quite reasonable to predict that there will be problems at the mill in many companies over the next six to 12 months unless employers, especially those whose finances are still robust, adopt a accommodating approach to wage demands. .
Gita Gopinath, the Princeton-trained economist who is deputy director of the International Monetary Fund (IMF), is hardly your ant-standard-left ideologue. She was lazily dismissed as a “neoliberal” by many in her native India when she was appointed financial adviser to Kerala’s regional government six years ago. If she lived here, you would definitely not expect to find her at a People Before Profit / Solidarity meeting.
So when Gopinath fired a harpoon missile last week clean through the hull of the Great Ship Pay Restraint and then docked at Davos, it made many of us sit up and notice it. Speaking at the Swiss business meeting, she reminded the audience that inflation is correctly defined as a time when prices go up, not wages. Annual inflation in Ireland was 8.2 per cent in May, and the momentum that was running long before the unions began to make noise was that they wanted wage increases for their members.
You can not walk across a room these days without stumbling across yet another solemn warning from some pointed head about the dangers of a “wage-price spiral” that fuels rampant inflation. But as a direct answer, Gopinath stated a truth that was powerful in its simplicity. She said that it is absolutely possible to have a situation where wages go up and prices do not follow: if companies accept lower profits. This weighed heavily because she had no self-interest in saying so.
Why did the Bank of Ireland not make more of this point recently when it warned of the danger of “harmful higher inflation” from rising wage demands? Will Andrew Bailey, Governor of the Bank of England, who earlier this year warned workers to “think and reflect” on asking for wage increases, be so quick to warn companies and shareholders to take the same approach to profits? Bailey, who is close to 575,000 pounds (674,000 euros) a year, took a lot of grip in the British media for his comments. He deserved it.
Many hotels and retail companies had their profits ravaged by the pandemic, but they will be back on their feet this year. Some companies were very profitable throughout.
Energy prices are the main driver of inflation. The ECB made record profits of 679 million euros last year, an increase of 10 percent. You can hardly blame union members when they cling to such anomalies to ask why, if companies can do so well, ordinary workers across the economy must be able to afford to accept more pain.
It’s not just large utilities and commodity companies. Pat McDonagh, the founder of the fast food chain Supermac’s, is rarely off the air and complains about how difficult it is to find staff for his company. He once suggested, quite unwise, that Pandemic Employment Payment (PUP) had made Irish workers lazy. Nevertheless, his company’s accounts for 2020 show that profits of almost € 23 million fell by a small 6.5 per cent, supported by millions of euros in government subsidies.
McDonagh is not pointed out here over his company’s profits because he has done something gross, but rather because he is so loud about how labor market conditions affect his business. There are many other companies in the consumer-oriented parts of the Irish economy that are comfortably as profitable as his and who are also not shy about moaning privately about how difficult it is to find staff at reasonable salaries.
The latest figures from Indeed.com indicates that wages are growing by less than half of prices. The recruitment site’s data showed that salaries, captured by its research, increased by 3.6 percent in April. This indicates that real wages are falling for many workers at rates that have hardly been seen since the days when wage cuts were de rigueur during the recent financial crisis.
This week, consultants Korn Ferry released a report on the salaries of board members of Irish listed companies. Many of them noted maximum bonus payouts last year and compensation has increased “significantly” compared to five years ago. The average non-executive director – a part-time gig that some directors collect as stamps – was paid more than € 107,000 last year. The average CEO of Irish listed companies received close to € 1 million.
Some large companies are pushing through price increases but also promise shareholders that they will resume or increase dividends. It is becoming increasingly difficult to preach wage restraint to workers when many industry leaders, and the investors they work for, are still so well paid.
A research note from the central bank this week showed that up to half of the workers do not believe that they will receive a wage increase at all in the coming year, despite the fact that they expect inflation to average 10 percent. And all this is happening at a time when the majority of employers are crying out for more labor. Anyone who believes that this can or should be maintained must wake up. That is simply unfair.
There is little evidence so far of any wage-price spirals in Ireland or anywhere in Europe. But there is ample evidence that profitable employers must receive substantial pay.
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