Labour Cost Adjustment during the Crisis: Firm-level Evidence

Suzanne Linehan, Reamonn Lydon () and John Scally
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Suzanne Linehan: Central Bank of Ireland
John Scally: Central Bank of Ireland

Quarterly Bulletin Articles, 2015, 73-92

Abstract: This paper introduces a new firm-level dataset, based on the results from a survey on the wage-setting practices of Irish firms in the second half of 2014. These survey results represent a useful resource for policy makers, allowing for firm-level analysis of the approach to the adjustment of labour demand and wages in the face of a large negative shock. A number of findings are worth highlighting in relation to these results: in terms of the labour cost cutting approach, firms relied upon both reductions in the quantity (employment and hours) and the price of labour (wages); employee numbers was the most widely used margin of adjustment, followed by wage cuts and hours. While the majority of Irish firms opted to freeze base wages, in the region of 60 per cent, there is strong evidence of downward wage flexibility, with almost one quarter of firms surveyed cutting wages. A comparison with previous findings in relation to Ireland and other euro area countries points to a dramatic increase in the incidence of wage freezes and wage cuts amongst Irish firms during the 2008-2013 period.

Date: 2015-07
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:qtbart:y:2015:m:07:p:73-92

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