International wage competitiveness - even if it means wage cuts - is key to sustaining and growing employment, the recently appointed Governor of the Central Bank, Patrick Honohan, told an economic conference in Dublin today.
He also said the Government had a "credible" programme for restoring stability to the public finances.
"Wage discussions need to recognise the increased purchasing power of money in an environment where inflation is falling; if not then our wage structures will move out of line with our competitors. Retaining wage competitiveness to sustain and increase employment is a key priority, even if it means cuts in nominal wages."
He said that in previous times, whenever real wages "moved as far ahead of our trading partners as they have since 2000, an inevitable consequence followed. Sooner of late unemployment rose".
Now that Ireland was in the euro zone, there was no possibility of deflating the currency. "There's no point in getting distracted in this discussion by pointing out inequities in the current structure of wages and salaries or remuneration generally; attempts to fix such inequities and anomalies do not need to get in the way of ensuring that the average real wage structure does not move out of line with that of the indirect competitors for workers in Ireland, namely workers abroad."
"If average wages in Ireland do not get back reasonably close to where they were relative to competitors earlier in this decade, then a reduction in unemployment will owe more to migration than to a return to job growth."
Mr Honohan made his first public comments as governor of the Central Bank when delivering the opening address at an ESRI/Foundation for Fiscal Studies conference on the forthcoming budget.
Speaking from the floor, general secretary of the Civil, Public and Services Union Blair Horan warned the ESRI against making "simplistic solutions" to the economic crisis. "I think you are just inviting industrial conflict," he said.
