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Explaining Changes in Earnings and Labour Costs During the Recession

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Author Info

  • Bergin, Adele
  • Kelly, Elish
  • McGuinness, Seamus

Abstract

This paper utilises data from the National Employment Surveys to analyse movements in both earnings and labour costs during the period 2006 through to 2009. It finds that, despite an unprecedented fall in output and rise in unemployment, both average earnings and average labour costs increased marginally over the period. Although some factors, such as a rise in the incidence of part-time working and falls in construction employment, served to depress wages, these influences were more than outweighed by increases in both the share of and returns to graduate employment and a rising return to large firm employment. This analysis suggests that a good deal of the downward wage rigidity observed within Irish private sector employment since the onset of the recession has largely been driven by factors consistent with continued productivity growth. Nevertheless, particularly within the male labour market, a substantial proportion of the movements in wages cannot be explained by changes in either labour market composition or the returns to individual/job characteristics. The large unexplained component in the data is attributed to a general reluctance of firms to cut wages in order to avoid productivity losses associated with worker dissatisfaction or higher rates of labour turnover. In support of this view, the study demonstrates that firms will adopt strategies such as reducing staff numbers, hours worked and bonus payments, in preference to reducing wages.

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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number EC9.

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Date of creation: Apr 2012
Date of revision:
Handle: RePEc:esr:wpaper:ec9

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Keywords: cost/recession/data/employment/unemployment/wages/Productivity/growth/labour market;

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References

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  1. Bertola, Giuseppe & Dabusinskas, Aurelijus & Hoeberichts, Marco M. & Izquierdo, Mario & Kwapil, Claudia & Montornès, Jérémi & Radowski, Daniel, 2010. "Price, wage and employment response to shocks: evidence from the WDN survey," Working Paper Series 1164, European Central Bank.
  2. Messina, Julián & Du Caju, Philip & Izquierdo, Mario & Duarte, Cláudia Filipa & Hansen, Niels Lynggård, 2010. "The incidence of nominal and real wage rigidity: an individual-based sectoral approach," Working Paper Series 1213, European Central Bank.
  3. Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Rõõm, 2013. "Why firms avoid cutting wages: Survey evidence from European firms," Working Paper Research 251, National Bank of Belgium.
  4. Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julián & Rõõm, Tairi, 2009. "The Margins of Labour Cost Adjustment: Survey Evidence from European Firms," Working Paper Series 1106, European Central Bank.
  5. Jan Babecky & Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Room, 2009. "Downward nominal and real wage rigidity : Survey evidence from European firms," Working Paper Research 182, National Bank of Belgium.
  6. Ugidos Olazabal, Arantza & Gardeazabal, Javier, 2002. "More on Identification on Detailed Wage Decompositions," DFAEII Working Papers 2002-17, University of the Basque Country - Department of Foundations of Economic Analysis II.
  7. Rebekka Christopoulou & Juan F. Jimeno & Ana Lamo, 2010. "Changes in the wage structure in EU countries," Banco de Espa�a Working Papers 1017, Banco de Espa�a.
  8. Kelly, Elish & McGuinness, Seamus & O'Connell, Philip J., 2008. "Benchmarking, Social Partnership and Higher Remuneration: Wage Settling Institutions and the Public-Private Sector Wage Gap in Ireland," Papers WP270, Economic and Social Research Institute (ESRI).
  9. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
  10. Lindbeck, Assar & Snower, Dennis J, 1988. " Job Security, Work Incentives and Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(4), pages 453-74.
  11. Barrett, Alan & Kearney, Ide & Goggin, Jean, 2009. "Quarterly Economic Commentary, Summer 2009," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20092, March.
  12. Barrett, Alan & Kearney, Ide & Goggin, Jean & Conefrey, Thomas, 2010. "Quarterly Economic Commentary, Summer 2010," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20102, March.
  13. McCoy, Daniel & Duffy, David & Bergin, Adele & Eakins, John & MacCoille, C, 2002. "Quarterly Economic Commentary, Summer 2002," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20022, March.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Internal adjustment of the real exchange rate: Does it work?
    by in Bruegel blog on 2012-07-06 11:07:31
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Cited by:
  1. Gorecki, Paul K., 2012. "Regulating Small Public Service Vehicles in Ireland: Is There a Problem of Oversupply?," Papers WP441, Economic and Social Research Institute (ESRI).
  2. O'Brien, Derry & Scally, John, 2012. "Cost Competitiveness and Export Performance of the Irish Economy," Quarterly Bulletin Articles, Central Bank of Ireland, pages 86-102, July.
  3. FitzGerald, John & Kearney, Ide & Bergin, Adele & Conefrey, Thomas & Duffy, David & Timoney, Kevin & Znuderl, Nusa, 2013. "Medium-Term Review: 2013-2020, No. 12," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR12, March.
  4. Aedin Doris & Donal O'Neill & Olive Sweetman, 2013. "Wage Flexibility and the Great Recession: The Response of the Irish Labour Market," Economics, Finance and Accounting Department Working Paper Series n244-13.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  5. AlanBarrett & Séamus McGuiness, 2012. "The Irish Labour Market and the Great Recession," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 10(2), pages 27-33, 08.

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