Exchange Rates and Competitiveness. Quarterly Economic Commentary Special Article, October 1988

Massey, Patrick and Baker, T.J. and Scott, S. and Kearney, L.M. (1988) Exchange Rates and Competitiveness. Quarterly Economic Commentary Special Article, October 1988. [Working Paper]

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Abstract

Employment in manufacturing industry in 1987 was 35,000 below its 1980 peak-according to the results of the Labour Force Surveys (CSO). It has been suggested by some authors that this is the result of a steady decline in competitiveness since the establishment of the European Monetary System (EMS) in 1979. (See for example Bacon (1986) and Walsh (1988) on this point). This loss in competitiveness is attributed to increases in labour costs relative to other EMS member states which have not been offset by movements in the exchange rate of the Irish pound. A devaluation has been suggested as a possible means of improving competitivenss and boosting output and employment in industry. The present paper questions such arguments. It argues that the decline in manufacturing employment reflects a number of factors besides changes in labour cost competitiveness and that a devaluation would not, therefore, be as effective as is sometimes suggested.

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