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Ireland ranks on par with Italy and below all high income euro area states (ahead of just ‘Southern’ or ‘peripheral’ Europe) in terms of hourly labour costs. For the ‘most productive’ (if measured by returns on FDI booked via Ireland) country, we are amazingly labour cost-competitive. Which, of course, only highlights the questionable nature of our labour productivity, plus lower non-wage costs of labour (such as employer taxation).
Now, recall – Ireland has been aggressively rebuilding its ‘competitiveness’ by reducing costs of labour. The internal devaluation meme and so on…. Right? Almost:
Over 2008-2014 our labour costs actually rose. Of course, our favourite ‘competitiveness’ metric – the unit labour costs (cost of labour required to produce a unit of output) fell. But that decline has nothing to do with our gained labour cost ‘competitiveness’. Instead, it has to do with increased output ‘units’ booked per hour of work. Which is, primarily, down to two factors:
- MNCs pushing more and more tax optimising ‘activities’ via Ireland (superficially increasing units of output per hour of work); and
- Destroying hundreds of thousands jobs in less productive sectors (the unemployment effect).
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