Irish labour costs have risen four times faster than average prices across the economy in recent years, pushing up the cost of housing, renting and childcare, experts in competitiveness have warned.
The National Competitiveness Council, which monitors the cost of doing business in Ireland, warned this week that labour costs had increased by 2.9 per cent but that the economy was not seeing similar increases in labour productivity.
Publishing the report, the council’s chairman, Prof Peter Clinch, said there were a number of hidden threats to cost competitiveness here even with Brexit continuing to loom on the horizon. After moderate years of growth, he cited the rapid rise in labour costs as “concerning” and warned that these increases were placing pressure on “essential consumer products” like housing, residential rent and childcare costs.
The total hourly labour cost in Ireland is currently €30.90 compared to €25.70 in the UK, according to the Cost of Doing Business in Ireland report. Labour costs were found to be highest in the utilities sector at €55 per hour and lowest in the accommodation and food sector at €16 per hour.
Mr Clinch noted that the State should be “mindful of the tax system” and that tax levels faced by those on higher incomes were a risk of creating a “disincentive to work for highly skilled employees.”
While the Irish economy is performing well, as a small, open economy, Ireland is "particularly vulnerable to a slowdown of the global economy", he said. Slow growth in the euro area is "particularly concerning" and Germany, "the engine of the European economy", has been sluggish, he added.
Mr Clinch highlighted a number of other “pressure points”, including interest rates which at 3.3 per cent are considerably higher than the 2 per cent rate in the euro area. This means Irish businesses looking to borrow money to “futureproof” their operations face costs that are on average 65 per cent higher than their EU counterparts.
He also pointed out that the prices businesses pay professionals such as lawyers and accountants, and services including human resources and warehousing, were increasing at the fourth-fastest rate in Europe.
“Rising costs have a disproportionate impact on Irish start-ups - creating challenges for some of our most innovative companies - as well as barriers to investment in management talent, training and innovation in employment-intensive smaller firms that are currently low productivity,” he said.
He underlined the “hidden costs” of operating a business in Ireland such as increasing traffic congestion in cities, the costs involved in the planning permission process, transaction costs connected to navigating the immigration system and finding housing when filling certain roles.
The report notes that prices in Ireland are now comparable to other countries that would traditionally be thought of as high cost such as Japan, the UK and the Netherlands. In 2017, Ireland was the 5th most expensive economy in the EU with prices 13 per cent higher than the EU average. Dublin is currently the 5th most expensive capital city in the EU, on par with Paris and Helsinki, with cost of living in the Irish capital 18 per cent more expensive than living in Brussels.
