With all the fuss this year about public versus private sector pay, it is surprising how little attention has been given to other respects in which pay developments in the economy have diverged between sectors. A key issue is that pay in manufacturing and software/IT-related services, which dominate Irish exports, has fallen behind that in most protected sectors of the economy. The people we rely upon to bring home the national bacon through exporting went from being comparatively well paid in the late 1990s, to being also-rans in the remuneration stakes.
Indexed to Q1 1998, the chart below looks at how real average weekly pay has changed for a range of sectors. In manufacturing it looks separately at industrial and managerial (managers/administrative/technical) workers because the composition of the workforce has changed quite radically over the period, flattering all-employee average numbers on trends in pay for the sector. (I have omitted the clerical worker category to limit data overload.)
I believe that 1998 provides as good a point of reference as any, because it was a time when people were excited about working in exporting industry, but when the fruits of the Celtic Tiger boom had already made good progress in trickling down to traditionally poorly paid services sectors. It is a couple of years before the peak of the Celtic Tiger exporting boom, and coincides with the early stirrings of the construction bubble.
As can be seen in the chart , average weekly pay in the “computing activity / R&D” (NACE 72-73) sector, mostly made up of software companies and businesses providing other IT-based services, fell a long way behind other sectors, and has only recently returned to where it was in 2000 in real terms.
In manufacturing, average weekly pay for managerial employees (category includes managers, administrative and technical employees) did better, but still fell well behind gains among public sector, construction and distribution workers, and indeed latterly fell significantly behind those in banking/building societies/insurance. Those in “industrial worker” jobs did a bit better.
I don’t have a detailed policy prescription for how we should respond to these facts, but I believe that competitiveness will benefit if there is a realignment of relative pay between sectors, bringing us closer to the relativities that existed in 1998. We need to return to a position where far more of our best people want to work in exporting industries. Improvements in real pay in computing activity, and among managerial workers in manufacturing, over the last year or so are encouraging in this respect, as is the rising interest in science and (non-construction) technology among college applicants. The drive for improved cost competitiveness should be seen in protected sectors of the economy, and among new recruits to exporting industries, ahead of those already working in exporting industry jobs that are viable at current levels of pay.
To those who say that all should suffer equally under our current economic stresses, I would make two points.
1) In relative terms, those working in exporting industries have suffered on pay over the last few years, while others have thrived. It’s time to redistribute the pain.
2) The remuneration of those working in exporting industries is one of the main channels through which the value of exports is captured for the Irish economy, rather than flowing overseas. From the point of view of maximising domestic economic activity and tax take, the greater the total earnings of all those working in exporting industry the better for everyone.
Three final points: 1) It is important to understand that it is significant that the data in the chart relate to full time employees. In industries such as distribution, where there are large numbers of part time employees much worse paid than full-timers, statistics based on the full employee population might look different. 2) I have limited the sectoral coverage of the chart to keep it readable in this blog format. 3) Manufacturing and computer-related services account for the majority of exporting industry. Unfortunately, the time series on financial services pay that includes the internationally traded financial sector has only been running for a couple of years.
