Perception of job insecurity could be cause of slow wage growth, finds report

Slow wage growth in Ireland may be the result of a perception of increased job insecurity on the part of workers, Central Bank economic research has found.

Wage restraint in the post-recession years has been constant, with wages, in some cases, falling. Household income, however, has increased, a phenomenon the Central Bank suggests is down to more people working in the household and those people working more hours.

One of the standout factors behind wage restraint appears to be worker concern that their job isn’t secure. That concern looks to have been well founded with the bank pointing to evidence that the “costs of losing a job increased significantly during the recession and remained high during the early years of the recovery”.

Additionally, worker demands for wage increases may have been moderated in the post-recession period due to the “prevailing low inflation environment”.

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The principal finding of the research is that while the labour market has recovered strongly from the recession, “overall compensation and hourly earnings growth remain subdued when compared to the pre-crisis period”.

Compensation

However, the bank indicates that the market is at a turning point and forecasts a nominal increase in compensation per employee of 3.2 per cent in 2018. That includes a 0.4 per cent increase in the average hours worked and hourly wage growth of just below 2.8 per cent.

Labour tightness, or the difficulty in finding new hires, has helped some sectors and as the economy returns to full employment, the research suggests that could drive growth higher.

“For example, the period from 2000 to 2007, when unemployment was under 5 per cent, saw real wage growth averaging 2.2 per cent per year,” it said.

Wage growth

The bank also notes that “high skill sectors such as finance, professional activities and IT” have seen relatively strong wage growth on the back of such tightness. Its explanation for wage growth in times of tightness is that employers tend to compete to hire the available workforce which creates the conditions for wage increases.

While the report is mildly positive, the bank attaches a caveat in its conclusion, saying: “It is nevertheless important to note that historical trends, from a wage perspective, may not necessarily prove to be a reliable guide to future developments for a variety of reasons.”