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Wage Flexibility and the Great Recession: The Response of the Irish Labour Market

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

Economics, Finance and Accounting Department Working Paper Series from Department of Economics, Finance and Accounting, National University of Ireland - Maynooth

Abstract: There is considerable debate about the role of wage rigidity in explaining unemployment. Despite a large body of empirical work, no consensus has emerged on the extent of wage rigidity. Previous attempts to empirically examine wage rigidity have been hampered by small samples and measurement error. In this paper we examine nominal wage flexibility in Ireland both in the build up to, and during the Great Recession. The Irish case is particularly interesting because it has been one of the countries most affected by the crisis. Our main analysis is based on earnings data for the entire population of workers in Ireland taken from tax returns, which are free of reporting error. We find a substantial degree of downward wage flexibility in the pre-crisis period. We also observe a significant change in wage dynamics since the crisis began; the proportion of workers receiving wage cuts more than doubled and the proportion receiving wage freezes increased substantially. However, there is considerable heterogeneity in wage changes, with a significant proportion of workers continuing to receive pay rises at the same time as other were receiving pay cuts.

Keywords: Wage Flexibility; Great Recession (search for similar items in EconPapers)
JEL-codes: J31 J38 D31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013
New Economics Papers: this item is included in nep-eec, nep-hme and nep-lma
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Journal Article: Wage flexibility and the great recession: the response of the Irish labour market (2015) Downloads
Working Paper: Wage Flexibility and the Great Recession: The Response of the Irish Labour Market (2013) Downloads
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