Wage Changes in the Irish Labour Market: Within- and Between-Firm Effects

During the Great Recession many Irish workers experienced nominal earnings cuts The proportion of all job stayers suffering earnings cuts trebled in the peak crisis years, with over 55% of workers receiving earnings cuts at the height of the crisis. However, while earnings cuts were common the evidence suggests substantial heterogeneity in earnings dynamics; at the same time as many workers were experiencing cuts, a substantial minority of workers continuing to receive earnings rises throughout the crisis. In this paper we use a unique dataset containing earnings data on every worker in every firm in Ireland from 2005-2013 to examine the relative role of worker and firm characteristics in explaining the observed heterogeneity in earnings dynamics. Our results show that firm effects play a smaller role in determining pay changes in Ireland. Although firm effects become more important in the peak year of the economic crisis, even then the vast majority of earnings changes continue to be driven by within firm rather than between firm forces. These finding raise a number of important questions about the role of morale and fairness in the wage setting process.