Government needs to pause uncoordinated and excessive labour cost increases

In its latest leadership sentiment survey taken just before Christmas, Ibec has revealed that the increasing cost of doing business is the single most significant challenge for business leaders heading into 2024. When asked what their priorities were for the next Government, 74% regarded the cost of doing business as the most important issue. In a letter to Government, Ibec CEO Danny McCoy expressed concern about the escalating cumulative costs affecting businesses right now, with the viability of many small enterprises becoming an increasing worry. Ibec estimates that the Government's labour market policies will add €4 billion annually to the wage bill of Irish employers and result in labour cost increases of between 25% and 30% in the most impacted firms.

Ibec CEO Danny McCoy said:

“While the economy remains in a robust position with sustained growth, costs are rising rapidly, and many businesses are struggling to maintain margins. At the beginning of the year, the cost of doing business increased dramatically due to government-imposed labour costs. Double digit increases in the minimum wage, effective from January 1st, along with a series of additional changes in quick succession—including increases to employer PRSI, modifications to statutory sick pay, the introduction of pension auto-enrolment, substantial increases in the salary thresholds for work permits, and enhanced protective leave entitlements—are imposing an unrealistic burden on businesses. While many of the changes have merit, our primary concern is the lack of coordination, resulting in these costs unnecessarily converging.

The current policy path by Government represents the biggest single change in Irish labour market policy in decades and a deficient approach to the implementation of those changes in Government now risks creating the most significant cost competitiveness challenge faced by Irish businesses since the pre-financial crisis period.”

In their letter to the Government, Ibec has called on the Government to:

• Pause all further labour market policy measures which involve a direct or indirect cost to employers. Employers need an immediate signal from Government that the current trajectory of increasing labour cost measures will not continue until impact assessment and coordination is agreed upon. In the absence of this, we fear that many more viable businesses will be lost as more business owners and managers struggle to see viable business prospects in an ever-increasing cost environment.

• Publish a full impact assessment of increased labour costs on business arising from the totality of recent labour market policy measures. Most of the recent labour market policy measures have been introduced without sufficient regulatory impact assessment. In particular, there has been no consideration given to the cumulative impact of the scattergun approach of labour market measures introduced by a range of different Government departments and agencies. The impact assessment needs to clearly set out the aggregate impact of all these measures and the likely consequence for future business viability and employment.

• Commit to a new ‘Competitiveness Charter’ setting an annual ceiling on the total amount of additional labour market costs which will be imposed on business in any single year. The uncoordinated approach across Government Departments is resulting in exceptionally large cumulative cost increases for many employers which are simply not sustainable. A more effective and consultative coordination mechanism is needed within Government to ensure that future changes can be implemented without damaging business viability.