While many commentators are more positive about the Republic's economic prospects than they were at the beginning of 2003, the underlying prospects for job creation and the maintenance of our existing workforce of 1.8 million will continue to be our greatest challenge for 2004.
At first glance, the 2003 employment figures appear to have shown remarkable resilience but below the waterline there are major structural problems. This year has seen the lowest level of job creation in more than a decade, a continued rise in part-time employment, reductions in the numbers of hours worked and the worst redundancy figures since 1984.
At 5.2 per cent, unemployment has risen to its highest level since 1999 and the redundancy figures notified to the Department of Enterprise, Trade and Employment for the year to November of 24,244 jobs are further proof that employment prospects are negative.
The Republic has slipped from fifth to 30th in the world competitiveness table and this continuing erosion of cost-competitiveness will dampen employment prospects. A rising cost base affects all businesses, particularly traditional manufacturing industries competing in international markets, but even knowledge-based industries have to compete on costs. The increasingly high cost of doing business in the State undermines our ability to compete.
The annual Competitiveness Report shows that the Republic ranked the third most expensive for electricity costs, third most expensive for landfill costs and Irish wages levels are 132 per cent of the EU average.
The Irish economy is well into a phase of adjustment that began more than a year ago. The traded sector has had to adjust to this environment by cutting hours worked, overtime payments, bonuses, reducing employment and rigorously examining every cost item to find ways to operate with a declining revenue stream.
The euro's strength against other currencies is also inhibiting the competitiveness of the economy because of our significant non-euro area trade. Of all EU member-states, the Republic has the greatest proportion of its trade outside the euro zone. Almost 60 per cent of our trade is in sterling or dollars. Britain accounts for 24 per cent or €22 billion of Irish exports. Movements against the dollar and sterling have a much greater impact on the Irish economy than on other euro zone countries.
In 2003, the Irish economy shed an average of 517 jobs every week and there is no sign of this trend abating. In fact, the reality of the job market may well be much worse, as these figures do not include job losses where the employee has less than two years' service, those under the age of 16 or those who have reached retirement age of 66; nor do they include people who are on lay-off or short-time, or who have suffered reduced working hours.
Employment growth among small firms has slowed considerably in 2003. Over the past year, 18 per cent of companies have made staff redundant and 12 per cent of companies have reduced working hours.
The manufacturing sector has been hardest hit, with 9,433 jobs and 42 per cent of all jobs lost to date. Of this, the metal manufacturing and engineering sector has seen the greatest losses at 5,209 jobs. This is the result of some long-standing multinationals relocating their operations to more cost-efficient bases.
Distributive trades; banking, finance and insurance; and other services sectors have also had severe job losses of 3,385, 3,018 and 2,403 jobs respectively. A regional comparison shows that 11,394, or 47 per cent of all jobs lost to date have been in the Greater Dublin region, with Cork and the mid-west each suffering job losses of 2,500-3,000.
During 2003, many small companies have had to engage in drastic cost-cutting measures in an effort to survive the economic downturn. Spiralling labour, insurance and energy costs have all played a part in putting increased pressure on business survival. Unless investment and business confidence can be restored and maintained we should expect further erosion of jobs in 2004.
What is particularly concerning about the current high levels of redundancies is that our ability to create jobs to compensate for these losses has also been damaged by losses to competitiveness in recent years.
The Small Firms Association research shows that job creation prospects are at a nine-year low. Furthermore, the average number of hours worked by individuals is declining from 42 hours to 39 hours per week. With the increased number of redundancies and the lack of new jobs being created to replace them, it is no surprise that the unemployment rate has been increasing.
As well as the tax foregone, every 15,000 extra people unemployed costs the Exchequer €100 million in social welfare payments. There is no doubt that unrealistic wage expectations, the increase in the minimum wage, and insurance, energy and waste increases have already led to significant job losses and reduced employment growth this year.
Unless we get sustained wage moderation and a further stripping out of unnecessary costs, 2004 will be a difficult period for employment with the likelihood of further job losses and consolidation.
Pat Delaney is director of the Small Firms' Association
