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Flexibility of new hires' earnings in Ireland

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  • Lydon, Reamonn

    (Central Bank of Ireland)

  • Lozej, Matija

    (Central Bank of Ireland)

Abstract

Two recent papers that are able to distinguish between the wage flexibility of new hires, incumbent workers and job changers provide opposite results. We use an administrative tax database on earnings and the data from Household Finance and Consumption Survey in Ireland to examine this issue and find that the earnings of new hires are substantially more flexible than those of the existing workers. This is driven entirely by the flexibility of earnings of new hires from unemployment, while earnings of job changers do not appear to behave differently than earnings of existing workers. The findings are robust to different econometric specifications, including controls for compositional shifts, age, education, occupation, and sector. We find that earnings of new hires from unemployment are more procyclical for workers with less valuable outside options, i.e., less educated workers and workers who cannot afford to wait out until retirement. Overall, our results indicate that wage rigidity may not be a suitable device to generate sufficient unemployment volatility in macroeconomic models for Ireland.

Suggested Citation

  • Lydon, Reamonn & Lozej, Matija, 2016. "Flexibility of new hires' earnings in Ireland," Research Technical Papers 06/RT/16, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:06/rt/16
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Lydon, Reamonn & McIndoe-Calder, Tara, 2017. "The great Irish (de)leveraging 2005-14," Working Paper Series 2062, European Central Bank.
    3. Lozej, Matija, 2019. "Economic migration and business cycles in a small open economy with matching frictions," Economic Modelling, Elsevier, vol. 81(C), pages 604-620.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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