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The first casualty of a strike is the truth.
With both the Aer Lingus pilots and the management spinning the story, it’s difficult to know who is really at fault or see the sweet spot for the resolution. The strike will end with an arbitration and the pilots may be escalating now to de-escalate later – a well-worn negotiation tactic. Cold comfort for the thousands whose summer has been ruined.
Once the dusts settles, the big question for the greater economy is whether this Aer Lingus pilots’ strike is a one-off or whether it signals a return to more strikes.
The pilots’ case is straightforward. They claim their wages have been eroded by inflation and that they are trying to claw back lost spending power. That’s all. The management claim a 24 per cent pay settlement is too high and a lower figure could be negotiated. So far, so obvious.
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But there is another layer to the row and it is that Aer Lingus made nearly a quarter of a billion euro profit last year. This money goes to shareholders, and profits also incentivise management who get a slice of this profit pie. The pilots, particularly the senior ones who consider themselves as not just workers but stakeholders in a going concern, see management reap the upside of the increased profits and they don’t like it.
The stakeholders versus shareholders argument is a slightly refined 21st-century version of the old 20th-century workers versus capitalists argument. If we were to reduce this battle to its Marxist essence, in the pilots’ eyes, they, the workers, are getting shafted despite increased profits while the management, the capitalists, are getting the cream.
The broader issue is whether the split between wages and profits is unique to Aer Lingus or does it represent an accurate description of the economy in general, where workers’ wages have fallen back while the income of capitalists – rents, dividends and gains from shares and property – has risen dramatically? The basic story is that profits are back baby – and they’re outstripping wages wholesale, everywhere.
The cleanest indicator of the returns to owners of capital is the global stock market. If stocks are going up, shareholders are getting rich. In the United States, in June the S&P 500 index reached 5,277.51, reflecting a 26.26 per cent increase in a year. In Europe, the Stoxx 50 index, increased by approximately 14.58 per cent over the same period.
Back home, the Irish Stock Exchange (Iseq) has seen substantial growth. In the six months to June 2024, the Iseq index increased by 7.77 per cent. Corporate profits in Ireland have soared, providing a solid foundation for stock market gains. Irish profits reached €79.8 billion in Q4 2022, marking a 30 per cent increase from the previous year. This surge in profits has not only boosted stock prices but has also allowed companies to increase dividends and engage in share buy-backs, thereby enriching shareholders further.
Companies experiencing robust profit growth have returned significant cash to shareholders through dividends, ensuring that a large portion of profits directly enhance shareholder wealth. The construction boom in Ireland has led companies like CRH to experience significant profit increases, driving up their stock prices and shareholder returns.
Old favourites are at it. Bank of Ireland announced a share buyback programme worth up to €520 million in early 2024, all this money going directly into shareholders’ pockets. Even Michael O’ Leary is giving money back – last year Ryanair completed a €400 million share buyback programme.
In short, there’s never been a better time to be rich. Cha-ching.
But what about those people who depend on wages for their income?
Starting in the US, it’s no secret that real wage growth was at best anaemic in the decade that followed the 2008 crisis. We see a similar picture in both Ireland and the UK. Average wage growth has lagged behind average productivity growth since 1999 across 52 high-income countries – according to a report from the International Labor Organisation.
In real terms, labour productivity has grown at 1.2 per cent per annum over the past two decades, significantly outpacing wages at 0.6 per cent. CEO pay has surged relative to that of the typical earner. For example, in 1970 in the US, the average chief executive earned about 20 times the average worker; today that figure is 290 times. Trends here are similar but not so dramatic.
In Ireland, as we noted a few weeks back, a vast system of transfers, taxes and benefits tries to rectify these inequalities but still the disparities are significant. For example, the average disposable income for households in the lowest 10 per cent in Ireland was €244 per week, while for those in the highest 10 per cent, it was €2,865 per week.
Social transfers try to level the field. Without these transfers, the Irish at-risk-of-poverty rate would have been 38.6 per cent in 2021, but with these social transfers, it was reduced to 11.6 per cent. The State is trying to remedy things, but the gap between workers and shareholders persists.
Over the past 30 years, a key factor driving asset prices (houses and shares) upwards relative to wages has been a fall in the rate of interest which was kept low due to structural forces such as slow economic growth in the USA and Europe, high savings rates from retiring Boomers (now aged 59-79) and more recently, from people saving more after the 2008 crash.
Now with increased government spending, unemployment at the lowest level in decades and the return of inflation, the landscape has shifted. Pressure on interest rates is likely to be upwards, not downwards in the years ahead. This will rein in asset prices, reducing the gap between workers and capitalists but it won’t happen quickly enough.
When we stand back, the issue at the core of the Aer Lingus dispute is this gap and it is a feature of the wider economy and society, not just here but all over the West. Right and Left are unified by income inequality. Why do you think the right wing under Le Pen is winning in France? She is riding a wave of worker discontent, where everything is getting expensive, the rich are trousering the gains and the average French person feels the pain. In the UK, Labour, traditionally the home of the worker, is also benefiting from the income gap.
Looking ahead, reasonably well-off pilots are unlikely standard bearers for the downtrodden, but they are the Donnybrook Fair battalion of an Aldi revolution, where the people who worry about the cost of their weekly shop are motivated to question why they aren’t benefiting from our roaring economy. For social peace, wages will have to rise.
Welcome to a new world of industrial turmoil after years of relative peace.