Presentation by Michael Taft of Unite the Union on strategies for wage-led growth.

1. STRATEGIES FOR WAGE-LED GROWTH
Michael Taft
Unite the Union

2. Definition of Employee Compensation
• Employee Compensation: comprises 2 payments:
• (i) Direct wage – paid by the employer to the employee. That’s
our ‘pay packet’.
• (ii) Social wage – paid by the employer to a social insurance
fund. From this fund employees consume goods/services for
free or at below-market prices; and is provided income
supports.
• Examples: health care, pay-related unemployment benefit,
pay-related social insurance pensions, maternity/paternity
benefits, etc.
• A low social wage = low public services and social protection;
workers have to purchase goods and services on the private
market and / or full-market prices (e.g. Ireland).

3. DealingWith Some Wage Myths: We Paid Ourselves Too Much
15.00
17.00
19.00
21.00
23.00
25.00
27.00
29.00
31.00
33.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Employee Compensation Market Economy: 2000 - 2010 (€ per hour)
Ireland Other EU-15 Other EU-15 not in Bailout SOE

4. Priorto the crashwageswerechasinginflation. When living standards andcurrency
movements are factored in, Irish compensationnever reachedthe EU averages.
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
26.00
28.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Employee Compensation Market Economy
2000 - 2010 (PPP per hour)
Ireland Other EU-15 Other EU-15 Not in Bailout SOE

5. WageMyths: WeALL Paid Ourselves Too Much. Duringthe latter part of the asset
bubble,increased direct income (income from work)wasmostly concentratedin
the top 10%. This seems counter-intuitive.
87
373 301
-74
-438 -579
-310
420
1,134
4,938
576
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th State
Average Annual Real Increases in Direct Income by Decile:
2003 - 2008 (€)

6. For middle income groups, social transfers compensatedfor the fall in directincome. The
‘squeezedmiddle’washeavily reliant on social protection payments.
602 629
777
859
1,172
1,207
1,100
646
365
191
755
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th State
Average Annual Real Increase Social Transfers:
2003 - 2008 (€)

7. The Squeezed Middle
• The average weekly income in 2013 was approximately
€688 per week, or €35,800.
• However, averages can be skewered by a few high-
income earners
• Better to look at median wages. Data is not very current
or detailed but we can make some estimates.
• How much does the ‘squeezed middle’ earn?
• The middle 60% of PAYE employees earn between
€11,750 and €51,200. And over half of this squeezed
middle earns less than €30,000.

8. Nearly 2/3 of all PAYE employees earn less than the average wage.
36.6
54.9
63.4
78.7
€20,000 or Less €30,000 or Less €35,800 or less €50,000 or less
Distribution of Income Earners: 2010 (%)

9. The CSO showsa substantiallevel of deprivation among middle decile groups.
36.4
46.8
36.4
31.5
26.2
18.6
15.5
7.1
4.8
1.6
22.5
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th State
CSO Deprivation Rate by Equivalised Decile Group 2010
(%)

10. The CSO also showshighlevels of deprivation among householdswithincome
from work
• We usually associate
deprivation with
households without work
income (e.g.
unemployed, single
parents, disabled, etc.).
• However, there are high
levels of deprivation
among households where
there are people working.
27.5
10.8
9.9
1 Person Working 2 Persons
Working
3+ Persons
Working
CSO Deprivation Rate in Households
with at Least 1 Person Working:
2011 (%)

11. Labour Share of Value-Added
• Wages and profits are paid out of Gross Value-Added
(GVA). GVA is equal to sales minus non-labour costs
(e.g. rent, utilities, goods and services, etc.).
• When GVA grows, both wages and profits may rise.
• However, the split between profits and wages at any point
is zero-sum. The greater the share going to profits, the
lower the share going to wages (and vice-versa).
• This is normally a straight-forward measurement.
However, given the distortions in the Irish economy
caused by MNC accounting activities, we have to attempt
adjustments. A considerable level of profits declared in
Ireland were generated in other economies.

12. Irish productivity is slightly above the average of other EU-15 countries.
43.77
42.18
42.03
41.35
40.94
40.51
37.87
36.80
36.70
36.61
35.61
33.14
32.95
31.95
23.00
20.82
Belgium
Netherlands
France
Germany
Ireland
Denmark
Austria
Ireland Adjusted
Spain
Sweden
Average
Italy
Finland
UK
Greece
Portugal
Value-Added per hour worked: 2014 (PPP)

13. Irish WageShare of CorporateValueAdded is extremely low byEU-15standards. In
2014, were Irishwageshare to reach the average of otherEU-15countries,it wouldmean
anextra €10 billion in wages– or over €5,000 per employee.
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
2003 2005 2007 2009 2011 2013 2015
Wage Share of Corporate Value Added 2002 - 2015 (%)
Average Other EU-15 Ireland Ireland Adjusted

14. ThePlanet is Wage-Led: All this leads to us to the reasonableconclusionthat
wageincreases are necessary, affordableand desirable. There are upsides and
downsidesto wageincreases.
Upsides
• Benefits workers
• Increases demand
(especially when directed at
low-paid) which drives growth
• Prompts business investment
• Increases tax revenue
• Reduces public spending
(where increased demand
leads to increased
employment)
• Reduces cost of income
supports (e.g. FIS)
Downsides
• Increases imports, reducing
net exports – impacts
negatively on growth
• Impacts negatively on
business investment
• Increases inflation
• Can increase public spending
(e.g. public sector workers)
• Creates ‘free-riders’ (where
organised workplaces are
disadvantaged vis-à-vis non-
organised workplaces)
• Can reduce competitiveness
(in the export sector)

15. The Planet is Wage-Led: the ILO Study
• The ILO conducted a major series of studies on the impact of
wage increases (increasing the labour share).
• They found that increasing the labour share produces a rise in
GDP (a .25 multiplier). While net exports / investment falls –
consumption increase compensates.
• Conversely, they found increasing the profit share lowers GDP
• BUT: a sting in the tail: for small open economies increasing
labour share results in falling GDP. This is because net exports
are reduced but the domestic market is too small to take
advantage of increased consumption.
• In fact, the problem could be worse for Ireland which has a
higher level of imports for private consumption (20 percent as
opposed to 10 to 13 percent for other SOEs.
• HOWEVER: this is a static analysis and takes no account of
rising productivity.

16. Issues regarding wage-led growth theory
• There are two issues which we should be aware of:
• First, political: wage-led growth can be convenient for
some Government Ministers because it is something that
other agencies should do (private sector business).
Similar to hearing demands on banks to write-off debt. It
removes the issue from political action.
• Second, wage-led growth can lead us to believe the crisis
is one of aggregate demand – rather than it being a crisis
of finance capital, privatisation of credit and chronic
under-investment. Increasing the labour share will have
positive benefits globally (or on a European level) but
unless we deal with the fundamental flaws, we will remain
stuck in an unequal stagnating economy.

17. Wage-ledGrowth: Irish Issues
• We must integrate wage-led growth proposals into a
larger analysis of the Irish economy:
• The privileging of finance capital over productive
investment
• The under-performance of the indigenous enterprise
sector – with low value-added activity
• The historical investment flaw – high corporate profits but
low corporate investment (a feature of a tax-haven
economy)

18. AWage-Led Strategy Must Go Beyond Just Wages
• A poor indigenous enterprise base in the productive
sectors means a lower level of consumption recirculated
in the domestic economy. A wage-led strategy will be
more successful if accompanied by a progressive
enterprise strategy that seeks to break with the current
tax-haven/FDI dominated policies – a strategy that builds
a more sustainable export base and can provide import
substitution.
• Need for higher value-added economic activity where
wages make up less a proportion of costs, turnover, etc.
Low-value added activities cannot generate high incomes.
However, the Irish indigenous sector compares poorly
with other SOEs.

19. Arguments for a Wage-Led Strategy Must Go Beyond Just Wages
19,892
17,132
15,574 15,394
11,818
Denmark Austria Finland Sweden Ireland
Indigenous Enterprise Value-Added
per capita excluding construction
(working age population): 2009 (€)
14.3%
11.7%
11.4%
10.9%
9.7%
5.5%
Finland Sweden Austria Denmark Belgium Ireland
Indigenous Manufacturing
Employment as a % of Total
Employment

20. The historicalflaw in corporate investment: Irish profits take a far higher proportion
of corporate GVAthan the Eurozone. Corporate investment, however, is lower.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Corporate Profit and Investment as a % of GVA: 2002 - 2012
Ireland - Profit EU-15 - Profit Ireland - Investment EU-15 - Investment

21. Startingthe arguments over wage-led growth
• We don’t have to wait until we resolve the issues of
finance capital, poor indigenous enterprise and the
historical investment flaw. There are a number of
indicators that show that we can commence wage-led
strategies immediately.
• First, NERI has argued that since the balance-of-
payments (essentially our ledger book with the rest of the
world) is strongly positive – this will facilitate wage
increases.
• Currently our balance-of-payments in is surplus. We take
in €11 billion more than we pay out to the rest of the
world. This provides substantial scope for wage growth
without affecting our balance with the rest of the world.

22. Arguments for a Wage-Led Strategy
• Second, employee
compensation are low
by EU-15 standards.
In 2011, Irish
employee
compensation would
need to rise by over 14
percent to reach the
average of other EU-
15 countries.
39.61
39.28
38.65
34.26
33.68
31.29
30.10
29.86
29.06
28.56
26.19
24.57
20.80
18.95
15.88
12.25
Denmark
Sweden
Belgium
France
Luxembourg
Netherlands
Germany
Finland
Austria
AVERAGE
Italy
Ireland
Spain
UK
Greece
Portugal
Employee Compensation in
Business Economy: 2011 (€)

23. Arguments for a Wage-Led Strategy
• Third, wage increases can
also come via the social
wage and increased social
protection. This means
workers’ net income rises as
expenditure is ‘socialised’.
Affordable childcare, free GP
care and prescription
medicine, fully free
education, increased
subsidies to public
transport, etc.
• Fourth, labour costs in
Ireland make up a smaller
proportion of total operating
costs in economy.
33.2%
32.6%
31.7%
30.4%
29.8%
28.7%
27.4%
24.4%
22.4%
20.6%
UK
France
Sweden
Germany
Average - Other Countries
Austria
Greece
Belgium
Ireland (adjusted)
Ireland
Employee Compensation as a % of
Total Operating Costs: 2010

24. Arguments for a Wage-Led Strategy
• Fifth, though wages
have stagnated over the
two years, some groups
have seen their incomes
rise considerably.
Disproportionate
increases to higher
income levels are
economically damaging
(higher savings, less
spending, import-dense).
5.3
-4.9
-7.2
Managers, professionals and associated professionalsClerical, sales and service employeesProduction, transport, craft and other manual
Increase in Weekly Earnings: 2011
-2013 Q3 (%)

25. Arguments for a Wage-Led Strategy: Finally,westill have a long waysto go before
wereach employee compensationlevels in other SOEs whileour productivity
levels are mid-range.
39.61
39.28
38.65
35.29
29.86
29.06
24.57
Denmark
Sweden
Belgium
Average Other SOEs
Finland
Austria
Ireland
Employee Compensation in Market
Economy: 2011 (€ per hour)
41.97
41.27
39.01
37.16
36.73
36.49
35.98
32.34
Belgium
Ireland
Denmark
Average Other SOEs
Ireland (adjusted)
Sweden
Austria
Finland
Productivity: Value-Added per hour
2011 (PPP)

26. All argumentsfor sustainablewage-ledgrowth lead to greater
socialisation of the economy.
• So we don’t have to wait to resolve potential problems in wage-
led strategies for a small open economy. Besides, other SOEs
have much higher levels of employee compensation. But a
long-term sustainable wage-led strategy involves greater
socialisation of the Irish economy:
1) Socialisation of the value-added through higher labour share
2) Socialisation of our credit functions (through public
banking, stronger regulation of banking and credit, etc.)
3) Socialisation of goods and services through a higher social
wage (increasing markets for health, pensions, education
and income supports).
4) Socialisation of investment – the great lesson of the Great
Depression
• And one more:

27. Productivityand Wages: employers claim that wageincreases shouldbe linked to
productivity increases. To correct the historicalgap betweenproductivityand
wages,weall shouldget a pay increase of a approximatelya third.
90
140
190
240
290
340
390
1990 1995 2000 2005 2010 2015
Productivity and Employee Compensation Growth: 1990 - 2015
(1990 = 100)
GVA per hour worked Employee Compensation

28. Socialisation of Enterprise Activity
• If there is a demand to link wages to productivity, then
workers have the right to say how that productivity is
created – what kind of enterprises, in what
sectors, investment decisions, innovation.
• And the best place to start the long-road toward
socialising enterprise activity is to increase labour rights:
right to collective bargaining, right of part-time workers to
full-time work, radical extension of Joint Labour
Committees.
• NOW: let’s discuss how we start all this.

29. Proposals for Discussion
• 1. An increase in the Minimum Wage: to maintain parity
with hourly wage growth since 2007 (most of the increase
would have been in 2008), the minimum wage should be
increased by €1 per hour.
• 2. Strong Wage Floors to be established in JLCs
• 3. Given statutory expression to the EU Directive on
Part-time work which gives part-time workers the right to extra
hours in their workplace when they become available
(Netherlands and Germany already have this in law).
• 4. The right to collective bargaining – Ireland is the only
country in the industrialised world without some statutory right
to collective bargaining. The premium is between 5 and 8
percent (higher in some sectors).

30. Proposals for Discussion
• 6. Increasing the Social Wage – through the long-
term doubling of employers’ PRSI. In the last
budget, Unite proposed that employers’ PRSI be
increased to 18 percent on incomes in excess of
€100,000 and the revenue to be invested in a new pay-
related unemployment benefit. This would redirect money
into domestic demand.
• 7. Increase taxation on capital, property and high
incomes to redirect money into programmes that can
reduce household expenditure. For example: each €100
million spent on affordable childcare (monthly fees of
€250) would create 7,500 places. An increase of €75
million in Dublin bus subsidies would reduce fares by 40
percent.