don thornhill, chair national competitiveness council national skills conference 26 october 2006
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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?. - PowerPoint PPT PresentationTRANSCRIPT
Economic Context for Skills DevelopmentOverview of Ireland’s Competitiveness
Don Thornhill, ChairNational Competitiveness Council
National Skills Conference26 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?
Source: WEF & IMD
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006
WEF IMD
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…
1000
1200
1400
1600
1800
2000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Employment Short Term Unemployment Long Term Unemployment
Thousands of persons Source: QHNS, CSO
Net Migration per 1,000 of Population, 1995-2004
4.3
-0.2
1.8
3.1
-0.2
0.5
9.4
-0.5
4.2 4.1
-1.0
0.7
-2
0
2
4
6
8
10
Ireland Northern Ireland EU 15 US NEU 10 Japan
Mig
rant
s pe
r 1,0
00 o
f pop
ulat
ion
1995-1999 2000-2004
Source: International Migration Outlook 2006, OECD
% of the Population Aged 20 to 24 having Completed at Least Upper Secondary Education (2005)
61.3%
71.0%
72.9%
74.1%
74.6%
76.0%
77.1%
82.8%
83.3%
84.8%
86.1%
87.8%
90.0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Spain
Germany
Italy
EU 15
Netherlands
Denmark
UK
France
Hungary
Finland
Ireland
Sweden
Poland
Lisbon Target 85%
Source: Structural Indicators, Eurostat
Population by Age Cohort that has at Least Third Level Education, 2003
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
EU 15
Ireland
UK
OECD
US
25-34
35-44
45-54
55-64
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
Ireland’s Share in World Merchandise and Services Trade, 1993-2005
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Services Merchandise
Source: WTO
Erosion of Ireland’s Cost CompetitivenessLabour Cost Growth Rate, 2000-2005
79.0%
55.3%
42.0%
29.6%
26.4%
24.4%
23.8%
23.4%
22.5%
22.1%
18.4%
15.1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Hungary
Czech Republic
Poland
Ireland (Q2 2005)
France
EU 25
Austria
Euro-zone
UK
Sweden
Denmark
Germany
Growth in Labour Costs, 2000-2005
Source: General and Regional Indicators,2006, Eurostat
Not Maximising the Potential of ICTComputers per 10 Students (mean), 2003
0.70.7
0.80.8
1.11.3
1.41.6
1.71.91.9
22.2
2.32.32.3
2.73
0 0.5 1 1.5 2 2.5 3 3.5
PolandPortugal
GermanySpain
IrelandItaly
NetherlandsSwedenFinland
DenmarkJapanOECDAustria
HungaryNew Zealand
UKKorea
US
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
-2%
0%
2%
4%
6%
8%
10%
1990-95 1995-2000 2001 2002 2003 2004 2005e
Government Consumption Investment Net Exports
Grounds for Concern1. 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
0%
20%
40%
60%
80%
100%
120%Ita
ly
Gre
ece
Belg
ium
Fran
ce
Aust
ria
Finl
and
Euro
are
a
Port
ugal
Spai
n
Ger
man
y
Irela
nd (G
DP)
Net
herla
nds
Irela
nd (G
NP)
2003 2004 2005 2006f
Grounds for Concern – Household Debt
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?
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 – Business Costs
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
5. Meeting Future Skills Needs: Globalisation and ICT– 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