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Explaining Changes in Earnings and Labour Costs During the Recession

Author

Listed:
  • 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.

Suggested Citation

  • 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).
  • Handle: RePEc:esr:wpaper:ec9
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    File URL: https://www.esri.ie/pubs/EC009.pdf
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    References listed on IDEAS

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    1. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 884-910, December.
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    1. Internal adjustment of the real exchange rate: Does it work?
      by in Bruegel blog on 2012-07-06 16:07:31

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    Cited by:

    1. Aedín Doris & Donal O’Neill & Olive Sweetman, 2015. "Wage flexibility and the great recession: the response of the Irish labour market," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.
    2. Helen Russell & Frances McGinnity, 2014. "Under Pressure: The Impact of Recession on Employees in Ireland," British Journal of Industrial Relations, London School of Economics, vol. 52(2), pages 286-307, June.
    3. 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.
    4. 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.
    5. Alan Barrett & Séamus McGuiness, 2012. "The Irish Labour Market and the Great Recession," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(02), pages 27-33, August.
    6. 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, December.
    7. 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).
    8. McGinnity, Fran & Russell, Helen & Watson, Dorothy & Kingston, Gillian & Kelly, Elish, 2014. "Winners and Losers? The Equality Impact of the Great Recession in Ireland," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT265, March.
    9. repec:ces:ifodic:v:10:y:2012:i:2:p:18948043 is not listed on IDEAS
    10. Russell, Helen & McGinnity, Fran & Kingston, Gillian, 2014. "Gender and the Quality of Work: From Boom to Recession," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT264, March.
    11. Barrett, Alan & Bergin, Adele & Kelly, Elish & McGuinness, Seamus, 2014. "Ireland's Recession and the Immigrant/Native Earnings Gap," IZA Discussion Papers 8459, Institute of Labor Economics (IZA).
    12. Russell, Helen & Grotti, Raffaele & McGinnity, Fran & Privalko, Ivan, 2019. "Caring and unpaid work in Ireland," Research Series, Economic and Social Research Institute (ESRI), number BKMNEXT382, March.
    13. Seamus McGuinness & Adele Bergin & Elish Kelly & Selina McCoy & Emer Smyth & Adele Whelan, 2019. "Evaluating Post Leaving Certificate Provision in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 50(3), pages 557-585.
    14. Doorley, Karina & Privalko, Ivan & Russell, Helen & Tuda, Dora, 2021. "The Gender Pay Gap in Ireland from Austerity through Recovery," IZA Discussion Papers 14441, Institute of Labor Economics (IZA).
    15. International Monetary Fund, 2012. "Ireland: Selected Issues," IMF Staff Country Reports 2012/265, International Monetary Fund.
    16. Alan Barrett & Séamus McGuiness, 2012. "The Irish Labour Market and the Great Recession," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(2), pages 27-33, 08.
    17. Conefrey, Thomas & Smith, Richard, 2014. "On the Slide? Salary Scales for New Graduates 2004-2012," Economic Letters 01/EL/14, Central Bank of Ireland.
    18. Enright, Shannen & Russell, Helen, 2020. "Gender balance at work: A study of an Irish Civil Service department," Research Series, Economic and Social Research Institute (ESRI), number RS115, March.
    19. Rory O'Farrell, 2015. "Wages and Ireland’s International Competitiveness," The Economic and Social Review, Economic and Social Studies, vol. 46(3), pages 429-458.

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

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