Only one in 100 firms have cut wages

Just 1 per cent of Irish companies have cut their employees' wages and salaries in the past five years, according to new research by economists at the Central Bank.

The research is further confirmation that companies use lay-offs rather than pay cuts to reduce their overall labour costs.

Despite Ireland suffering one of the severest recessions in Europe over that period, wage cuts were much rarer here than on average in the 14 countries included in the study. Only in Spain and Italy was the percentage of companies who reduced pay lower.

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The Czech Republic and Lithuania were at the other end of the spectrum, with more than 8 per cent of companies cutting wages.

The most commonly cited reason for not cutting wages among Irish firms was a concern it would damage company morale.

The second most cited reason was the fear that the best employees would leave to take up employment elsewhere.

In this, Irish companies were identical with their counterparts elsewhere.

The report concludes that “across all countries and sectors, the two most important causes for avoiding base wage cuts are the belief that this would result in a reduction in morale or effort and the danger that the most productive workers would leave as a consequence”.