Wages and Ireland’s International Competitiveness

Abstract

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. Since 2008, the fall in nominal unit labour costs is 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.