Economic Aches

Last Saturday night I was told by a friend me that The Economist told him that Ronald Reagan once told whoever would listen that inflation is “as violent as a mugger, as frightening as an armed robber and as deadly as a hit-man.” In these gloomy economic times, with FÁS predicting losses of 55,000 construction sector jobs by the end of 2009, when the credit crunch seems to be to property portfolio-holders and young house-buyers what “Post 9/11” was to civil liberties fans and Guantanamo Bay detainees, it is worth spending some time mulling over some of the grimmer scenarios for the Irish economy.

The construction boom, upon which much of Ireland's recent economic growth was based on, according to some commentators, appears to be over. The country is dotted with housing estates that appear to be left unfinished as their builders go bust. Anecdotally, I know of one auctioneering firm whose staff size has fallen to a third of what it was last year while their monthly sales income has decreased by a factor of nine.

One point I took from May 24^th's lead story in The Economist is that while inflation per se may not be all that high, employees' perceptions of inflation can become higher and this in turn leads to higher wage demands. As there is no sign of us seeing any decrease in the number of inflation related headline stories between now and the national pay talks, it is a near-certainty that public and semi-state sector employees will push for wage increases. They may even be granted the rises, with the help of collective industrial action. Joe Private Sector Employee will see what his public sector counterpart was doing and will naturally follow suit.

And how will the multinational employer of JPSE react when himself and his colleagues begin to strike? Will they negotiate? Maybe. Will they accede to the JPSEs' demands? Doubtful. You can bet your bottom devalued dollar that JPSE's job will be outsourced offshore to a land with lower wages and less collective bargaining power. Even though according to the European Restructuring Monitor only 8% of EU jobs lost to restructuring between 2003 and 2006 have involved offshoring, this figure is likely to rise, at least in Ireland's case.

'Inflation' photo by Joshua Davis