Wage growth accelerates on back of inflation and staff shortages

Wage growth in Ireland has accelerated sharply on the back of higher living costs and staff shortages in several sectors, according to a new study.

The research carried out jointly by the Central Bank and recruitment website Indeed found that wages, based on advertised jobs, rose at an annual rate of 4.7 per cent in October, almost twice the pre-pandemic rate.

Certain sectors such as cleaning and sanitation, food preparation/service, customer service, loading and stocking, and retail were experiencing much sharper increases, the study indicated.

Slowdown

While the data pointed to an acceleration of wage growth during the first half of 2022, there were “some signs of plateauing” in the third quarter — it fell from more than 5 per cent in the second quarter — possibly linked to a more pronounced slowdown in growth and a changed economic outlook.

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Policymakers are concerned that inflationary pressures could become entrenched in the economy if workers start demanding higher salaries to compensate for the increased cost of living.

Wages have also been pushed higher by staff shortages in the wake of the pandemic.

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The study looked at wage growth trends in millions of online job advertisements in six euro area countries — France, Germany, Ireland, Italy, the Netherlands and Spain — and the UK.

It found that growth in posted wages in the six euro area countries accelerated strongly in 2022 to reach a rate of 5.2 per cent in October. UK wage growth rose at an even higher rate of 6.2 per cent with the study noting that the UK was experiencing higher inflation and a decline in labour supply.

Overall it suggested that wage growth was “increasingly broad-based”, with most occupations having annual growth of 3 per cent or more in posted wages.

The Central Bank and Indeed have developed a new wage growth tracker based on data from millions of online job postings on the Indeed website, which they plan to publish on a monthly basis.

“These trends align with central banks’ expectations for wages to continue to grow well above pre-pandemic rates in the near term,” according to their study.

Policymakers

The European Central Bank (ECB) and Bank of England have been increasing interest rates to dampen inflation. In making their rate decisions, policymakers pay close attention to underlying inflation, price growth without energy or food and wage growth, both of which indicate how widespread price pressures are becoming.

To track wage developments, the ECB uses national data on workers’ compensation and data on negotiated wages, which the study claimed can lag the actual trend given the lengthy time periods over which negotiations tend to take place. Hence the need for more up-to-date data.

“While wage growth accelerated earlier this year, and employees dealing with a higher cost of living benefited from higher pay, our latest data shows signs that wage growth may be plateauing in Ireland and several other countries in Europe,” said Pawel Adrjan, economist with Indeed and co-author of the report.

Many employers are still hiring, with job postings on Indeed in Ireland up 59 per cent on pre-pandemic levels at the end of October, he said.

“But the tentative signs of a deceleration of growth in advertised wages and salaries suggests some employers are taking stock of the demand for new workers amid broader economic uncertainty,” he said.

“There is a need to understand how wages are responding to the current economic uncertainty and high inflation. The new monthly Indeed Wage Growth Tracker enables a deep analysis of trends in advertised wages and salaries based on timely data from job postings,” said Mr Adrjan.

“The tracker will give policymakers and employers a comprehensive overview of wage trends when making decisions that impact interest rates, the labour market and workers,” he said.