Business

Productivity is key to prosperity in the next Programme for Government – PwC

Wages in Northern Ireland haven't kept up with the rest of the UK
Gary McDonald Business Editor

WAGES in Northern Ireland are seven per cent less than where they were before the recession in 2005 while households' disposable incomes are £1,450 (11 per cent) below the amount the average family enjoyed in 2007, a new economic report reveals.

And while PwC unemployment has been falling steadily and total employee jobs have been growing, this has not being translated into productivity, output and more money in people's pay packets.

The bleak findings are revealed in PwC's latest Northern Ireland Economic Outlook (NIEO).

Of its 10 key recovery dashboard indicators - ranging from wages and disposable income to sectoral employment- only service sector jobs have recovered to their pre-2008 or pre-crisis level.

And the authors warns that making employment the main yardstick of economic recovery fails to acknowledge stubbornly low productivity, which is languishing at below pre-recession levels.

PwC chief economist Dr Esmond Birnie says improving productivity will be a vital component in the new Programme for Government (PfG), currently being negotiated by the main political parties.

“After previous recessions, productivity tended to recover strongly, but not this time," he said.

"While Northern Ireland's unemployment has fallen steadily, there has been a disproportionate rise in part-time jobs and in people working just over 16 hours a week, relative to the rest of the UK.

“As 'full-time' employment is defined as more than 16 hours a week, the number of such workers may have increased, but the total number of hours worked per person across the economy has actually fallen below the pre-recession total and that has been reflected in low productivity, currently around 8 per cent below the pre-crisis level.

“Low productivity translates into reduced business profitability, low wages, and falling household disposable incomes, which in real terms, are now around, £1,450 (11 per cent) below the amount the average Northern Ireland family enjoyed in 2007.”

Despite Thursday's Bank of England cut in UK growth forecasts to 2 per cent in 2016 and 2.3 per cent in 2017, PwC says Northern Ireland's economic growth will continue to lag the other UK regions (the local economy is forecast to grow by 1.3 per cent this year and 1.5 per cent in 2017).

That contrasts with the pre-recession years of 2004 and 2005 when the region's economic growth ran at 3.1 per cent and 2.6 per cent respectively.

But back then the region was highly dependent on public spending, with the public sector employing one-in-three of all Northern Ireland workers and 60 per cent of all female employees.

The NIEO says last October's spending review set the general context for public spending over the next mandate - a moderate real terms reduction in current spending with capital funding broadly flat.

The UK budget 2016 confirmed further austerity with a modest £223m Barnett consequential over the Executive over four years - albeit Stormont departments will be charged with extra pension contributions of about £60-£80m in 2019-20.

Given that the switching-on of the power to reduce corporation tax to 12.5 per cent is dependent on the Executive's finances being put on a stable, long-term basis, PwC says the new Executive will need to agree a multi-year budget covering the remaining years after 2016-17 and running up to the next election.

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