The Labour Market and Wage Growth after a Crisis

Suzanne Linehan, Reamonn Lydon (), Tara McIndoe-Calder (), Paul Reddan and Diarmaid Smyth
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Suzanne Linehan: Central Bank of Ireland
Paul Reddan: Central Bank of Ireland
Diarmaid Smyth: Central Bank of Ireland

Quarterly Bulletin Articles, 2017, 66-79

Abstract: The substantial improvement in labour market conditions since 2013 has been one of the most noteworthy aspects of Ireland’s economic recovery. An important exception in this turnaround is, however, wage growth, which remains subdued relative to pre-recession trends. This article uses a number of metrics to fully assess underlying labour market conditions, before considering the reasons behind recent muted wage growth and the potential path of future wage developments. The evidence suggests that some of the postcrisis weakness in wages may be attributed to temporary factors including low inflation, employment composition effects and the estimation of labour market slack. Furthermore, our analysis points to a non-linear relationship between wage growth and unemployment, whereby the degree of sensitivity of wages is greater during periods of low or high unemployment. We also note a number of reasons as to why historical trends may not represent a reliable guide to future wage developments including changes in institutional wage setting, a shift in the natural rate of unemployment, recession-related scarring effects and productivity developments.

Date: 2017-10
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:qtbart:y:2017:m:10:p:66-79

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