Ireland’s Competitiveness:A comparison with Denmark

Charlie’s Angels

James O’Brien – Project leader Mary Redmond Magdalena Poltorak Niall Rooney Cathal O’Dwyer James Brennan

What We Looked At:

EMU Benchmarking & Social Partnership Minimum Wage R&D and Innovation Third Level Sector Infrastructure and Communications

THE EURO / EMU• Ireland joined the Euro 01/01/99

•12 States joined the EMU

•Locked the exchange rates of their currencies to the euro

• Creation of the ECB

Benefits of EMU

Completion of the internal market Price transparency no hidden prices

for the consumers and traders Reduced transactions costs Elimination of exchange rate

uncertainty Enhanced anti-inflation credibility

Cost of Joining EMU

Costs of achieving convergence

Loss of independent interest rate and exchange rate

Loss of fiscal autonomy

Competitiveness

Rt= St.Pt*/Pt

Rt = Real exchange rate St = nominal exchange Pt = domestic price level Pt*= foreign price level

Ireland

Euro was successful for some years Increased European exports / imports Irelands Wage costs increased No choice to alter interests rates 85 Bn Bailout from IMF High interest Reduce Budget deficit to 3% in 4

years

Denmark

Not joined the Euro Currency Highest standard’s of living 2007 entered it’s own recession Raised interest rates – pegged Krone to

euro Euro rate falls -Danish exports more

competitive 2010 Deficit above 3% cant join EMU

Social Partnership

Wage Certainty Industrial Peace Wage Moderation Tax cuts and moderate wage

increases Aiming to increase take home pay for

lower income earners

Strike Days lost:1970-2004

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1970 1975 1980 1985 1990 1995 2000

Annual 3-Yr m.a.

Hourly Earnings Growth in Manufacturing, 1991-2004:

0

2

4

6

8

10

12

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

NWA Actual

0

2

4

6

8

10

12

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Agreed Actual

Taxation Strategy

Irish labour market supply & demand:

Employment (N)

S

S1

D

Wage rate

W

W1

N N1

Benchmarking

Aim to address public-private pay differentials

Overcome retention and recruitment problems

However,Public sector employment outpaced

private sector 1999-2003The ‘Maynooth Study’ - premium already existed

Conclusions

Premium existed due to Social Partnership

Continued after Benchmarking Process

Indirect and direct costs to business - Public services (e.g. health,

transport) - Unsustainable costs to the

exchequer - greater wage expectations by

everyone - Wage competitive advantage

against the private sector (Lane)

MINIMUM WAGE

- prohibits paying less than a specified rate by government

IRELAND• The National Minimum Wage Act, 2000 April 1, 2000: £4.40 per hour January 1, 2011: €7.65 per hour

• No significant impact on Irish economy: Ireland in excellent condition that time, thus increase in wages would have taken place anyway.

reduced competitiveness growing inflation

DENMARK

• No statutory minimum wage regulated by legislation

• Defined through collective bargaining• Usually, - time-based versus output-

based (payments)• No effects on economy• Greater competitiveness in comparison to

Ireland

Innovation and R&D

Innovation and R&D was imperative in the foundation and development of Irelands competiveness.

It provided the means to develop more industries, educate people and portray Ireland as a growing, completive nation for FDI.

Government policies and funds were important in the sustainment of innovation and R&D

The triple-helix model is at the heart of Innovation and R&D.

The Triple Helix Model

Government Funding

IndustryUniversity

•The triple helix denotes the university-industry-government relationship as the main driver of innovation and R&D in a economy.

Ireland

Continuous growth in third level qualifications over past decade

People staying in education longer

‘Knowledge based’ economy key for Irish revival

New wave endogenous growth theoryembraces openness, competition, change and

innovationPhysical capital (K), human capital (H) & labour (L)

Denmark

Slower growth in college participants over the last ten years in Ireland

More focus on reforming education system

Education reform seen a fall in unemployment rates for recent graduates

The Hunt Report

In depth economic report on education system chaired by Dr. Colin Hunt

Suggests abolishment of ‘Free Fees’ system

Student loan system successful in Denmark

Loan period over five years – encourages longer stay in higher education

If loan not paid back within 15 years – payments voided....

INFRASTRUCTURE

•Over 70 billion euro invested in Ireland’s NDP’s of 2000-06 and 2007-13.•Money provided for building of new roadways and also airport and port facilities.•Aim was to promote regional, national and international competitiveness.

Denmark

• Denmark has extensive, modern infrastructure which helps keep them competitive.2000, Denmark declared having

world’s best airports

Cycling playing a huge role in reducing congestion

Scored 90% for transport efficiency

Communications

Good communications network is vital for country’s economic well being.

Millions of euro provided to help promote availability of competitive broadband service in Ireland.

In 2003, Ireland had 42% of households with a computer.

1/3 had internet access. Denmark had 79% of households with

computer.2/3 had internet access.

Conclusion

Reform Irish fiscal policy Conservative wage setting Minimum wage applied to sector by sector

(Deloitte) Innovation and R&D co-ordinated with private

sector and third level institutions Sustainable funding for Higher level Education Cost/Benefit analysis of infrastructural projects Liberalisation of semi-state bodies (McCarthy) Costs of transport, energy, and waste

increased by 5% in 2010