Quarter of firms cut wages after economic crash

Almost a quarter of Irish firms cut wages after the crash and more than half froze pay but staff at a “significant” number of high-tech employers still saw their pay increase through the crisis period, Central Bank research has found.

The bank’s examination of wage-setting practices points to a “dramatic” increase in wage freezes and cuts between 2008 and 2013 .

A European comparison found the incidence of pay cuts in Ireland was second only to Estonia, but the paper also suggests the extent of such cuts may have been masked by pay increases in the high-tech sector.

Demand shock

The research – by analysts Suzanne Linehan, Reamonn Lydon and John Scally – concluded that cutting jobs was the most widely used response to the demand shock of the crisis. This was followed by cuts to wages and working hours.

Two-thirds of firms that reduced hours in 2008-2009 also laid off staff, as did half the firms which cut hours between 2010 and 2013.

“Irish firms predominantly controlled wage costs via wage restraint – approximately 60 per cent of firms indicated that they froze base wages . . . with the incidence of pay freezes highest among small firms and those in the labour-intensive distributive trades sector,” the study found.

“Such a high incidence of wage freezes could be interpreted as pointing to the existence of downward wage rigidity, in line with the literature. Nevertheless, there is strong evidence of downward wage adjustment, with almost a quarter of firms surveyed indicating that they had cut base wages during the 2008-2009 and the 2010-2013 period.”

The research, which examined survey returns in the second half of 2014 from 1,569 respondents in the private sector, found the presence of high-tech sectors ensured demand remained high for skilled labour.

“These firms were generally more insulated from domestic developments and continued to offer employees attractive remuneration packages in line with productivity.”

The construction sector reported the largest declines, with almost 60 per cent of firms reducing employment.