The Bausch & Lomb plant in Waterford.

What’s going on at the Bausch & Lomb plant in Waterford is very disturbing, not least because the city in the southeast has never really recovered from the Waterford Glass closure in 2009.  There's no other industry of any scale there, so the 1,100 jobs in the Bausch & Lomb eye health/contact lens plant under threat now are vital to Waterford.  

Talks are going on this week to try to lessen the impact of what the company wants – the deadline is June 17 – and hopefully some compromise can be found.  Those talks involve senior people from the Labour Relations Commission as well as the unions.  

But there is a very serious issue at play here which has a much wider relevance than just the jobs at the Waterford plant.  That issue is the post boom pay rate competitiveness of Irish industry, including in foreign companies here like Bausch & Lomb.

You are probably familiar with the story since it made headlines here.  The company is threatening to close the plant unless they get agreement to a cost-cuttinig plan that calls for 200 redundancies and a 20 percent pay cut for the remaining staff. 

Unusually for a situation like this, the message from the company was crystal clear and no attempt was made to sugarcoat the bitter medicine.  Either accept or the entire plant shuts down and all 1,100 jobs are lost. That was it.  

But it wasn't just the stark take-it-or-leave it message that was shocking.  It was the reason tacked on to it from the company that made eye-opening news.

In their statement the company said it wanted to bring the cost base of the Waterford plant closer to the cost base in its big plant in Rochester, NY where similar work is done.  Wage rates in Rochester are "more than 30 percent lower" than the rates in Waterford, the company said.  

That was the real shocker.  We are, of course, used to losing manufacturing jobs to Eastern Europe, or India or Vietnam or other developing countries where wage rates – and standards of living – are much lower. But this is different. This time we are losing jobs because pay rates are 30 percent higher than in Rochester, NY!  

The reaction to this from the workers, trade union officials, local politicians and other leaders in Waterford was, understandably, a degree of embarrassment, followed by claims that the two situations could not be compared.  

"It's not comparing like with like,” one union official insisted on radio.

Some of the workers seemed mystified, claiming that by the time they have paid their mortgages and all their other bills and put food on the table they have nothing left.  And now there is property tax and water charges are on the way. 

To suggest they were being overpaid is nonsense, they said.  Without batting an eyelid, one union official explained that the cost of living was much higher here, so it's not surprising that pay rates are higher than in Rochester.

And that is exactly the point. For those who have managed to hold on to their jobs in Ireland, wage rates have not fallen all that much from the heady days of the boom.  

This is reinforced by what has happened to those on the state pay roll – medics, police, teachers, etc. – where pay cuts have been minimal. The same applies to lawyers and accountants and all the other professions and services.
And it's evident further down the chain.  Despite the construction collapse, hiring a plumber here is still very expensive. For example, a plumber replacing the ballcock and other bits in a toilet cistern in my house last week charged me €110 for a job that took less than an hour.

This tendency to hang on to boom time pay rates is not surprising.  It's only human nature, after all.

And as austerity has been applied here with state spending cuts, extra charges for services and tax hikes and levies, people naturally feel that they need the money.  They don't feel they are overpaid.  In fact many of them are struggling to make ends meet.

But of course the wider context is of little interest to a foreign company here.  Why should they care about the tax hikes and all the extra charges that people here have to pay as the state tries to cut the budget deficit?    

Why should Bausch & Lomb care if the cost of living here (everything from hiring a plumber to the cost of food and all the other stuff we need) means that we want high pay rates?  That's not their concern.  All they are interested in, like all companies, is their bottom line.  

So how high are the pay rates in the Bausch & Lomb plant in Waterford?  The Irish business organization body IBEC recently produced figures which show that the average basic pay rate in the Waterford plant is €29,000. That increases to average pay of €39,000 ($53,200) when shift premiums are factored in. 

That does not seem like an excessive level of pay to us here, particularly after what we saw during the boom.  But I'm not sure how it would seem to a worker at the plant in Rochester. 

The overall problem we have here is that, apart from all the heartache it has caused, the boom and bust has left us with a legacy of higher pay (and higher welfare benefits) than is the norm in our nearest neighbor, the U.K., and, it seems, also in the U.S.

It's not the individual person's fault.  It's very hard to expect an individual to accept that their pay is too high.

But the reason that the cost of living here is so high is that this reluctance to moderate pay levels is so widespread.  It's not just the plumber who wants to charge you the same as he did during the boom; it's the accountant, the lawyer, the doctor and so on. 

To work for the individual, it means that pay scales right across Irish society – and particularly in the protected professions and services – have to be moderated enough so that the overall cost of living across the country comes down. 

There is a disturbing lack of political leadership and vision on this here.  In fact the tendency has been to pile on ever more tax hikes and levies and charges to get the budget under control. But that just means that people find it harder to live on what they now earn, never mind contemplate living on less.

There is an awareness of the problem at some senior levels, and there is concern that we may see similar situations emerging in other FDI (foreign direct investment) companies here in the future.

We now know that the government and the IDA had been aware for months of the situation that was developing in Bausch & Lomb, following its takeover by the Canadian drug giant Valeant in a $8.7 billion deal last year.  The IDA chief executive Barry O’Leary pointed out last week that it was made clear at the time of the Valeant/Bausch & Lomb merger that worldwide a 15 percent cut in the workforce of the group and annual savings of $800 million were being planned.

He stressed that the IDA strategy was to make sure that these changes in the group worldwide would leave a significant presence for Bausch & Lomb in Waterford.  O'Leary also stressed that the reality was that if the cost savings here are not achieved, the Bausch & Lomb operation will simply leave.  

"That’s the stark reality that people have to make the judgment call on, however bitter it is to swallow,” he said.  

Ireland is a very attractive location for many FDI companies, particularly American companies, and there is no doubt that our accommodating attitude to corporation tax is a big part of that attraction, as well as us being English-speaking, well educated and part of the EU.  But pay levels are also a significant part of the mix, and we ignore that at our peril.  

In California last week, Taoiseach (Prime Minister) Enda Kenny was reassuring some of the big high tech companies he was meeting that Ireland would defend its tax arrangements for foreign companies robustly.  But the reality is that those tax arrangements are under severe scrutiny now in Europe, where the feeling is that Ireland is getting away with far too much.  

They are also under scrutiny, significantly, in the U.S., where there is growing impatience that American companies are using these tax arrangements to keep billions in profits overseas when they could be used to create badly needed jobs back home in America.  That pressure is likely to increase greatly in the run-up to the next presidential election.  

If that does happen – and it is more likely than not – then the question of the pay rate competitiveness of Irish industry will be an even bigger issue in the future.