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Wage BargainingSection 6.4 identifies developments in wages and competitivenessin Ireland. This reveals steady growth of earnings and wages overthe past decade and strong growth in recent years. When this iscombined with an analysis of productivity trends and levels, itreveals a sharp deterioration of Ireland’s cost competitiveness inrecent years. This section finishes with a discussion of the shares ofwages and profits in national output, distinguishing between hightechnologyforeign-owned sectors and the rest of the economy.Section 6.5 reviews wage determination and organisation in theIrish public sector. Section 6.6 identifies the options for Ireland.6.2 ANALYTICAL APPROACHES TO THE STUDY OFWAGE BARGAINING6.2.1 The Council’s ApproachIn its previous Strategy reports the Council has undertaken adetailed review of the analytical foundations of different wagebargaining systems (NESC, 1996a, 1999). Those reviews outlinedthe famous Calmfors and Driffill hypothesis: that extremelycentralised and extremely decentralised wage bargaining systemswere superior to intermediately centralised systems (Calmfors andDriffill, 1988). Attention was drawn to the argument that centralisation/decentralisationmay be less important than co-ordination andencompassing agreements. It was also emphasised that a highly coordinatedapproach to wage bargaining is successful only where itcombines strong institutions (necessary to give discipline andachieve encompassingness) with mechanisms that require organisationsto come to terms with market forces (such as an independentcentral bank, export competitiveness, company-level institutions,appropriate relations between companies and the state). Mostimportant of all, the Council drew attention to economic analysiswhich suggests that the centralisation or decentralisation of thebargaining structure may be less important than the approach whichunions and employers adopt. The Calmfors-Driffil hypothesisshows the superiority of centralised bargaining, on the assumptionthat parties adopt a non-co-operative approach. Research by223