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Labour Cost Adjustment during the Crisis: Firm-level Evidence

Author

Listed:
  • Linehan, Suzanne

    (Central Bank of Ireland)

  • Lydon, Reamonn

    (Central Bank of Ireland)

  • Scally, John

    (Central Bank of Ireland)

Abstract

This paper introduces a new firm-level dataset, based on the results from a survey on the wage-setting practices of Irish firms in the second half of 2014. These survey results represent a useful resource for policy makers, allowing for firm-level analysis of the approach to the adjustment of labour demand and wages in the face of a large negative shock. A number of findings are worth highlighting in relation to these results: in terms of the labour cost cutting approach, firms relied upon both reductions in the quantity (employment and hours) and the price of labour (wages); employee numbers was the most widely used margin of adjustment, followed by wage cuts and hours. While the majority of Irish firms opted to freeze base wages, in the region of 60 per cent, there is strong evidence of downward wage flexibility, with almost one quarter of firms surveyed cutting wages. A comparison with previous findings in relation to Ireland and other euro area countries points to a dramatic increase in the incidence of wage freezes and wage cuts amongst Irish firms during the 2008-2013 period.

Suggested Citation

  • Linehan, Suzanne & Lydon, Reamonn & Scally, John, 2015. "Labour Cost Adjustment during the Crisis: Firm-level Evidence," Quarterly Bulletin Articles, Central Bank of Ireland, pages 73-92, July.
    • Handle: RePEc:cbi:qtbart:y:2015:m:07:p:73-92
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    File URL: https://centralbank.ie/docs/default-source/publications/quarterly-bulletins/qb-archive/2015/quarterly-bulletin-no-3-2015.pdf?sfvrsn=8#page=75
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    References listed on IDEAS

    as
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    2. Lawless, Martina & Keeney, Mary, 2010. "Wage setting and wage flexibility in Ireland - Results from a firm-level survey," Working Paper Series 1181, European Central Bank.
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    4. Conefrey, Thomas & Smith, Richard, 2014. "On the Slide? Salary Scales for New Graduates 2004-2012," Economic Letters 01/EL/14, Central Bank of Ireland.
    5. Bergin, Adele & Kelly, Elish & McGuinness, Seamus, 2012. "Explaining Changes in Earnings and Labour Costs During the Recession," Papers EC9, Economic and Social Research Institute (ESRI).
    6. Claudia Kwapil & Johann Scharler & Josef Baumgartner, 2010. "How are prices adjusted in response to shocks? Survey evidence from Austrian firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 151-160.
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    Cited by:

    1. Cornille, David & Rycx, François & Tojerow, Ilan, 2019. "Heterogeneous effects of credit constraints on SMEs’ employment: Evidence from the European sovereign debt crisis," Journal of Financial Stability, Elsevier, vol. 41(C), pages 1-13.
    2. Cornille, David & Rycx, François & Tojerow, Ilan, 2018. "Heterogeneous Effects of Credit Constraints on SMEs' Employment: Evidence from the Great Recession," IZA Discussion Papers 11257, Institute of Labor Economics (IZA).
    3. Byrne, Stephen & McIndoe-Calder, Tara, 2019. "Employment Growth: Where Do We Go From Here?," Quarterly Bulletin Articles, Central Bank of Ireland, pages 122-148, July.
    4. Lydon, Reamonn & Lozej, Matija, 2018. "Flexibility of new hires’ earnings in Ireland," Labour Economics, Elsevier, vol. 53(C), pages 112-127.

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