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How Important are Firms in Explaining Wage Changes During a Recession?

Aedín Doris (), Donal O'Neill () and Olive Sweetman

Economica, 2020, vol. 87, issue 345, 282-298

Abstract: During the Great Recession, many Irish workers experienced nominal earnings reductions, with about 50% of private sector employees receiving pay cuts at the height of the crisis. However, at the same time, a substantial minority of workers continued to receive pay increases. In this paper we use a unique dataset containing earnings on every worker in Ireland to examine the relative roles of worker and firm characteristics in explaining this heterogeneity in earnings dynamics. Our results show that between‐firm effects play a small role in determining pay changes in Ireland. Although between‐firm effects became more important in the peak year of the economic crisis, the vast majority of earnings changes continued to be driven by within‐firm forces. These findings raise a number of important questions about the role of morale and fairness in the wage‐setting process.

Date: 2020
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Handle: RePEc:bla:econom:v:87:y:2020:i:345:p:282-298