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Explaining Changes in Earnings and Labour Costs During the Recession

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

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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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
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Handle: RePEc:esr:wpaper:ec9
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  1. Giuseppe Bertola & Aurelijus Dabusinskas & Marco Hoeberichts & Mario Izquierdo & Claudia Kwapil & Jeremi Montornès & Daniel Radowski, 2010. "Price, wage and employment response to shocks: evidence from the WDN Survey," Banco de Espa�a Working Papers 1006, Banco de Espa�a.
  2. Jan Babeck� & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi R��m, 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.
  3. Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2014. "Why firms avoid cutting wages : survey evidence from European firms," Policy Research Working Paper Series 6976, The World Bank.
  4. Julián Messina & Philip Du Caju & Cláudia Filipa Duarte & Niels Lynggård Hansen & Mario Izquierdo, 2010. "The incidence of nominal and real wage rigidity: an individual-based sectoral approach," Banco de Espa�a Working Papers 1022, Banco de Espa�a.
  5. 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.
  6. 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).
  7. Babecky, Jan & Caju, Philip Du & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2009. "The margins of labor cost adjustment : survey evidence from European firms," Policy Research Working Paper Series 5160, The World Bank.
  8. Javier Gardeazabal & Arantza Ugidos, 2004. "More on Identification in Detailed Wage Decompositions," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 1034-1036, November.
  9. Lindbeck, Assar & Snower, Dennis J, 1988. " Job Security, Work Incentives and Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(4), pages 453-74.
  10. Fuss, Catherine, 2008. "How do firms adjust their wage bill in Belgium? A decomposition along the intensive and extensive margins," Working Paper Series 0854, European Central Bank.
  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. 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.
  13. 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.
  14. 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.
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