Social Partnership, Irish Style

The government knew that one of the underlying causes of the country's economic ills was the wage inflation that had resulted from free pay bargaining (unrestricted requests for wage increases). The unions needed to be convinced that accepting tough measures, such as spending cuts, was in their members ' interests, because increases from short- term pay claims were being eroded by tax and inflation. The government proposed tax cuts in return for pay restraint, a deal the unions bought. The new style of social partnership that emerged was a response to the national crisis in employment and public finances. The radical change in union thinking and behavior laid the groundwork for what was to become the Irish economic miracle . Pay restraint increased Ireland's competitiveness for investors, gave employers a degree of certainty on payroll costs, and resulted in increases in employment and growth together with a drop in inflation.

Between 1987 and 2000, there was an 80% increase in real take-home pay and a 12% drop in income tax rates. The improvement in industrial relations is evidenced by the drop in the number of days lost due to strikes, from over a million in 1979 to less than 35,000 in 2000.

The key to the Irish system of centralized bargaining (originally outlined in the NESC report mentioned above) is the linking of pay and non-pay items such as tax, welfare benefits, social insurance and provision of services, and the inclusion of unions in the medium- and long-term macroeconomic management process.