IRELAND STICKS TO "SOCIAL PARTNERSHIP" ON

UNCLAS DUBLIN 000356 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON ELAB EI SUBJECT: IRELAND STICKS TO "SOCIAL PARTNERSHIP" ON NATIONAL WAGE TALKS ¶1. Summary: Biannual negotiations on a new national wage agreement are underway among labor, employers and the Government, the so-called "Social Partnership" process that has underpinned Ireland's past economic success, but which some commentators increasingly view as anachronistic. The agreement would establish non-legally binding but morally authoritative benchmarks for pay increases and would also set out consensus positions on wide-ranging social policies. Labor market reform, the demands of globalization, protection for migrant workers, the provision of quality public services, and a time frame for the agreement are key issues that the Social Partners hope to reconcile by Easter. Discussions are currently focused on employment standards, with employers opposing union demands for new employment laws to underpin workers' pay and conditions, including for immigrant workers. Whereas past Social Partnership agreements delivered the industrial peace that made Ireland an attractive investment destination, some economists believe that the process is now ill-suited to a healthy, market-led economy. The partnership process nevertheless retains its relevance for its psychologically reassuring message that Ireland is a country of consensus and a good place for business. Politically, a general election is expected by May 2007, and the Government hopes to finalize an agreement in order to brandish its electoral credentials, to build support among employers and labor, and to remove possible distractions from the campaign. End Summary Social Partnership Talks Underway -------------- ¶2. Discussions have been underway for over a month to extend the 18-year-old "Social Partnership" process, a series of agreements between the Government, employers and trade unions - the Social Partners - dating back to the 1980s. These agreements establish non-legally binding but morally authoritative benchmarks for pay increases in both the public and private sector, and embody a consensus approach to a wide range of social policies, such as healthcare and pensions. The talks, due to begin in November 2005, were deferred by the Irish Congress of Trade Unions (ICTU) over plans by an Irish ferries firm to replace its workers with foreign nationals earning half the Irish minimum wage. The dispute was resolved following nationwide protests organized by ICTU on December 9, in which roughly 100,0000 people took part. Discussions are currently focused on employment standards, with employers opposing union demands for new employment laws to underpin workers' pay and conditions, including for immigrant workers. The talks were to conclude by Saint Patrick's Day (March 17),but the participants hope now to finalize an agreement by Easter, just before the annual conferences of several larger unions, particularly the teachers' unions. What is Social Partnership? -------------- ¶3. Social Partnership was born in 1987, when the Government convened meetings among trade unions, employers, and farmers that led to a three-year "Programme for National Recovery," the first Social Partnership agreement. At the time, the country faced significant problems, such as excessive national debt (debt to GNP ratio of 150 percent),high unemployment (17 percent) and high levels of emigration (40,000 per annum). In the bargain reached in the first partnership talks, labor agreed to accept limits on wage increases and on recourse to industrial action in exchange for government guarantees of accessible health care, affordable housing, and lower personal tax rates. Five successive Social Partnership programs have maintained the outlines of the basic bargain. The latest agreement, "Sustaining Progress" (2003 - 2005),called for a seven percent private sector pay increase over 18 months, a minimum wage of seven euro per hour, and improved redundancy pay terms. Contribution to Ireland's Success -------------- ¶4. The Social Partnership approach helped to deliver Ireland's recovery from the disastrous early and mid- 1980s and has underpinned, through labor market stability, a sustained period of growth since. The partnership agreements put a brake on wage increases and brought down inflation, which facilitated Ireland's successful participation in the Exchange Rate Mechanism (ERM) and transition to European Monetary Union (EMU). By moderating wages and securing industrial peace (an average of 317,000 days per annum were lost through industrial disputes in the 1980s, compared with 21,000 days in 2004),Social Partnership also made Ireland competitive as a destination for foreign direct investment (FDI),particularly U.S. FDI in the pharmaceuticals, IT, and financial services sectors. (A young, educated, English-speaking workforce and favorable corporate tax rates also helped to attract such investment.) What the Trade Unions Want -------------- ¶5. In the current Social Partnership negotiations, the Irish Congress of Trade Unions (ICTU),which represents 57 unions, has called for a six-year agreement, with a wage review to take place every two years. Paul Sweeney, ICTU's economic advisor, recently told Emboffs that labor's main areas of concern are labor market reform and maintenance of employment standards. Sweeney cited the Irish ferries dispute as having exposed a culture of abuse and exploitation of immigrant workers, who now account for over eight percent of the Irish workforce. ICTU is pressing for an Independent Labor Inspectorate, on the premise that keeping the existing inspectorate in the Department of Enterprise, Trade and Employment (the ministry representing Irish business interests) represents a conflict of interest. ICTU is also looking for wage increases of at least four percent, but Sweeney emphasized that the process was not just about wages. In that case, he explained, labor might be able to achieve better wage terms through direct negotiations with employers and through recourse to strikes. Rather, ICTU views the partnership process as a platform where unions can also shape broader social policies, such as pension reform, healthcare, childcare, and education. What Employers Want -------------- ¶6. The Irish Business and Employers Confederation (IBEC),representing the employer and business community, is focused on managing the threats and opportunities of increased globalization and the provision of quality public services. IBEC's Director of Economic Policy, Danny McCoy, told Emboffs that public sector pay increases were the major issue in the talks, noting that previous agreements gave the public sector disproportionate increases. For example "Sustaining Progress" called for an average pay increase of 8.9 percent across the public service, compared to 7.0 percent for the private sector. (Irish economists concur that a recent rise in inflation above 3 percent is tied to public sector wage increases, which feed through to the costs of public services.) For employers, said McCoy, the partnership process must produce an agreement that maintains labor market/workplace flexibility, ensures effective investment in infrastructure, and assists businesses with R&D and worker training. IBEC also disputes the unions' argument that newly arrived immigrant workers are displacing Irish laborers and exerting downward pressure on wages. McCoy views the partnership process as a "dinosaur," but a necessary one to preserve the feeling of economic consensus. The Government Angle -------------- ¶7. The Government negotiators, led by Dermot McCarthy, Secretary General in the office of the Prime Minister and SIPDIS overall chair of the process, have called on the Social Partners to agree to a ten-year framework for the process, with a wage review every two years. The idea is to align an agreement with the Government's longer-term budgetary spending programs aimed at developing a more dynamic, innovation-based economy. McCarthy takes his lead from Prime Minister Bertie Ahern, who views the partnership process as vital to sustaining Ireland's hard- won economic achievements. Ahern has been instrumental in previous partnership negotiations, as Minister for Labor in 1987 and Prime Minister since 1997. (Comment: Most commentators see Ahern as leaning in favor of union interests in the negotiations, as his parliamentary constituents in North Dublin are primarily blue-collar workers.) Comment: Does Ireland Need an Agreement? -------------- ¶8. Consensus and good faith are the keys to Social Partnership, and each side in the process has, for the most part, honored commitments in previous agreements. Employers have given a greater commitment in areas such as training, childcare, and a flexible working environment. Trade unions, while protecting the interests of their members, have worked more closely with employers in both the private and public sectors to deliver higher productivity and enhanced quality of service. Government has delivered on a measurable increase in the provision of infrastructure and public services such as health and education, while increasing the living standards of disadvantaged groups. ¶9. The question increasingly posed by commentators, however, is, "does Ireland need a partnership process in the current economic climate?" In one sense, the question is moot, as none of the Social Partners has indicated any intention of abandoning the process. Significant changes in Ireland since 1987, when Social Partnership was necessary to redress serious economic hardships, nevertheless make the question legitimate. The Ireland of 2006, with full employment, low inflation, and steady growth, is a healthy economy, where labor and business presumably could work out the terms of employment through direct negotiations. Moreover, the original rationale for the process - moderating wage growth to make Ireland a more competitive FDI destination - is somewhat outmoded, since the country can no longer compete with such FDI magnets as India and China purely on wages. Social Partnership nevertheless retains its relevance, in part because employers value the certainty associated with industrial peace and pre-determined pay increases, while the unions maintain a degree of influence beyond what might be achievable at a time of falling union membership in the private sector (now roughly 30 percent). To a larger extent, as IBEC's Danny McCoy suggested, the process remains important simply for its reassuring psychological message that Ireland is a country of consensus and a good place for business. This reassurance is one of numerous factors, including a low corporate tax rate and an educated workforce, that have sustained Ireland's economic performance and competitiveness in recent years. KENNY