45126-Invest. Qual-No111

Macroeconomic PolicyWage Determination and Incomes PolicyTighter labour market conditions seem to have been a key factorcontributing to higher inflation in Ireland in recent years. With theeconomy at virtually full employment, it was natural that more ofthe benefits of economic growth were taken in the form of higherwages rather than increased employment. The strength of demand inthe economy, in conjunction with rising wage and other costs, hasincreased prices in the services sector. Excessive price and wageinflation has led to a loss of competitiveness and a rise in unemployment.Approaches to wage bargaining are discussed in Chapter 6.Employee financial involvement provides more flexible ways ofallowing employees to share in the benefits of economic growth.Such schemes are not primarily aimed at the inflation problem butthere are potential counter-inflationary effects. Employees who areable to share the benefits of higher profits are less likely to seekinflationary wage increases. The Council’s view on this is outlinedin Chapter 6, where wage bargaining is discussed.Competition Policy and Regulatory ReformStrong competition has numerous potential benefits. It can exertdownward pressure on prices, encourage responsiveness tocustomer demands and promote innovation. Competitive forces canbe impeded either through state-imposed regulations, such as thosethat existed until recently in the taxi market and still exist forpharmacies, or can be limited by collusion among private companies.Reforms to remove state-imposed obstacles to competition,and the pursuit of a vigorous competition policy to reduce privaterestrictions, can contribute to reducing inflation.The Council strongly supports the strengthening of competitiveforces across the economy through the more vigorous implementationof competition law and it supports the introduction of greatercompetition in sectors such as pharmacies, the drink trade and theprofessions. It recommends that the Competition Authority and theDirector of Consumer Affairs be mandated and resourced, as part ofa strategy against inflation, to prioritise investigations in sectorswhere prices do not appear justified by market conditions.213