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Economic Context for Skills Development
Overview of Ireland’s Competitiveness
Don Thornhill, Chair
National Competitiveness Council
National Skills Conference
26 October 2006
What is Competitiveness?
• National competitiveness refers to the ability of firms based
in Ireland to trade in global markets.
• Competitiveness is partly about costs, prices and wages…
• …but more about better business performance through
innovation and productivity
• Competitiveness remains a foundation for national
economic and social progress
Ireland’s International Competitiveness Rankings
Where does We Stand Internationally?
35
WEF
IMD
30
25
20
15
10
5
0
2000
Source: WEF & IMD
2001
2002
2003
2004
2005
2006
Ireland’s Strengths
• Ireland continues to attract high levels of overseas investment
• Competitive personal and corporate tax rates
• Strong labour force growth, reflecting both natural growth
and immigration
• Improving school completion and third level participation
rates
• Relatively low levels of regulation – but perceived to be
increasing
• High rates of entrepreneurship
• High levels of public investment
• Productivity levels in ‘modern’, export-oriented
manufacturing and services sectors are high by global
standards
Strong Labour Force Growth…
2000
Employment
Short Term Unemployment
Long Term Unemployment
1800
1600
1400
1200
1000
1990
1991
1992
Thousands of persons
1993
1994
1995
1996
1997
1998
Source: QHNS, CSO
1999
2000
2001
2002
2003
2004
2005
Net Migration per 1,000 of Population, 1995-2004
10
9.4
1995-1999
2000-2004
Migrants per 1,000 of population
8
6
4.3
4.2
4.1
4
3.1
1.8
2
0.5
0.7
0
-0.2
-0.2
-0.5
-1.0
-2
Ireland
Northern Ireland
EU 15
Source: International Migration Outlook 2006, OECD
US
NEU 10
Japan
% of the Population Aged 20 to 24 having Completed
at Least Upper Secondary Education (2005)
Poland
90.0%
Sweden
87.8%
Ireland
86.1%
Finland
84.8%
Hungary
83.3%
France
82.8%
UK
77.1%
Denmark
76.0%
Netherlands
74.6%
EU 15
74.1%
Italy
Lisbon
Target
85%
72.9%
Germany
71.0%
Spain
61.3%
0%
10%
20%
Source: Structural Indicators, Eurostat
30%
40%
50%
60%
70%
80%
90%
100%
Population by Age Cohort that has at Least
Third Level Education, 2003
US
OECD
25-34
UK
35-44
45-54
Ireland
55-64
EU 15
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Ireland’s Weaknesses
• Ireland’s international trade performance is weakening
• Ireland is losing employment in manufacturing – over 32,000 job
losses since 2000
• Too few Irish start-ups develop real scale
• Erosion of Ireland’s cost competitiveness
• Poor (but improving) infrastructure - road, air, seaports, waste and
energy
• Low levels of domestic competition and productivity in many
domestically trading sectors
• Average national educational performance
• Dual labour force and low levels of engagement in life long learning
• Young and undifferentiated R&D system
• Not maximising the potential of ICT
3.0%
Ireland’s Share in World Merchandise and
Services Trade, 1993-2005
Services
Merchandise
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1993
Source: WTO
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Erosion of Ireland’s Cost Competitiveness
Labour Cost Growth Rate, 2000-2005
15.1%
Germany
18.4%
Denmark
Sweden
22.1%
UK
22.5%
Euro-zone
23.4%
Austria
23.8%
24.4%
EU 25
26.4%
France
29.6%
Ireland (Q2 2005)
42.0%
Poland
55.3%
Czech Republic
79.0%
Hungary
0%
10%
20%
30%
40%
50%
60%
Growth in Labour Costs, 2000-2005
Source: General and Regional Indicators,2006, Eurostat
70%
80%
90%
Not Maximising the Potential of ICT
Computers per 10 Students (mean), 2003
US
3
Korea
2.7
UK
2.3
New Zealand
2.3
Hungary
2.3
Austria
2.2
OECD
2
Japan
1.9
Denmark
1.9
Finland
1.7
Sweden
1.6
Netherlands
1.4
Italy
1.3
Ireland
1.1
Spain
0.8
Germany
0.8
Portugal
0.7
Poland
0.7
0
0.5
1
1.5
2
2.5
3
3.5
Current Assessment of Competitiveness
• Using GDP and GNP growth figures, Ireland is still competitive
• However, growth since 2000 has changed in nature and it does not
necessarily reflect improved international competitiveness
• Domestic demand is driving growth, driven:
–
–
–
–
–
rising national confidence,
high rates of borrowing,
low interest rates,
a shift towards services, and
greater international competition.
Dominance of Domestic Demand
10%
Government
Consumption
Investment
Net Exports
8%
6%
4%
2%
0%
-2%
1990-95
1995-2000
2001
2002
2003
2004
2005e
Grounds for Concern
1. Loss of internationally trading businesses
•
•
•
Ireland share of world markets in decline, particularly in manufacturing
Current account deficit is growing – Irish residents are spending more than
they earn
Loss of 32,000 manufacturing jobs since 2000 – replaced by jobs in
construction and the public sector
2. Ireland’s debt burden
•
•
•
Ireland has very high levels of household indebtedness…
…And Ireland’s indebtedness continues to grow rapidly…
…while interest rates are increasing
Ireland (GNP)
Netherlands
Ireland (GDP)
Germany
Spain
Portugal
Euro area
2005
Finland
Austria
2004
France
2003
Belgium
Greece
Italy
120%
Grounds for Concern – Household Debt
2006f
100%
80%
60%
40%
20%
0%
Grounds for Concern – Construction
3. Dependence on the construction sector
• By the end of 2005, over 13 per cent of Ireland’s employment was accounted
for by the construction sector – higher than any other OECD country and over
twice the rates of the USA and Germany.
• As Ireland’s housing needs and infrastructural deficit are addressed,
construction’s exceptionally high share of economic activity and employment
can hardly be sustained.
• Are these skills transferable?
Grounds for Concern – Business Costs
4. Costs
• Ireland has experienced a loss of international price
competitiveness, reflecting both higher inflation and a worsening
of our trade-weighted exchange rate
• Consumer prices: Ireland is both an expensive country and one
where prices continue to rise faster than in most other EU
countries
• Labour costs, largest cost category for business: costs have
grown at faster rates than experienced in other euro-zone
economies
• Non-labour costs: NCC research highlights the relatively high
cost of property and utilities, including electricity, mobile
communications, and waste disposal in Ireland
Grounds for Concern – External Risks
•
•
•
Long run economic growth depends on success in exports
markets
Over time, the Irish economy must shift back from the current
domestic driven phase of economic growth towards export-led
growth
Also need to be aware of external risks, such as:
– Further rises in oil and energy prices
– House price volatility throughout the OECD
– A further weakening of the dollar, which would affect the cost
competitiveness of Irish exporters
Five Key Policy Challenges: Productivity
1. Need for enhanced productivity growth across all
sectors of the economy
•
•
•
•
Productivity growth has slowed considerably in
recent years
Investment required in all levels of education system
Investment in infrastructure - including broadband
Cost reduction
Five Key Policy Challenges: Competition
2. Promotion of competition
•
•
•
Costs of doing business in Ireland high, particularly
for utilities, communications, property and key
professional services
Nationally – removal of government and sectoral
restrictions on competition
Internationally – promotion of free trade and work
with others to get Doha back on the rails
Five Key Policy Challenges: Tax System
3. Securing the competitiveness of the tax system
•
•
•
International trends in relation to tax have changed –
Ireland’s model is being adopted elsewhere
Broadening of the tax base
Efficiency of public services
Five Key Policy Challenges: Innovation
4. Improving the capabilities of our companies to
move up the value chain
•
Pursue with relentless determination the
implementation of the strategy for science,
technology and innovation, and initiatives to
enhance management capabilities
Five Key Policy Challenges: Skills
Meeting Future Skills Needs: Globalisation and ICT
5.
–
–
–
–
Fears around outsourcing and automation
But not all jobs can be outsourced, and ICT both substitutes
and complements human skills
Growing demand for skills that require expert thinking and
complex communications
Evidence (Levy et al) suggest a ‘hollowing out’ of moderately
skilled jobs that are routine in nature and rule based
Five Key Policy Challenges: Skills
5. Meeting Future Skills Needs: Implications for Education
– Need to retrain existing workers at risk
– Need for strong basic skills and competencies
• Basic competencies needed to develop more advanced skills
• Quality and effectiveness of the teaching of maths and science – new
strategies?
– Need for advanced skills
• Need for attention to problem solving and interpersonal skills
• Understanding and rote learning
• Implications for teaching resources and the format of examinations?
Conclusions
• Ireland’s national competitiveness has been central
to Ireland’s success
• Ireland needs to recover some its lost export
competitiveness…
• …a skilled, adaptable and knowledge intensive
workforce is essential