Greater distribution of hourly wage levels during economic boom

New research on wage inequality in Ireland in the boom years between 1994 and 2007 concluded that the distribution of levels of hourly pay across all employees fell sharply up to 2000, before increasing from 2000 to 2007. The earnings of those with higher wages grew less rapidly in 1994–2007 while the introduction of the minimum wage in 2000 affected lower earning levels. Changing patterns of immigration and employment growth in the boom’s latter years also had an impact.

About the study

Wage inequality in Ireland’s ‘Celtic tiger’ boom, a study by researchers from University College Dublin (UCD) and the Economic and Social Research Institute (ESRI) published in spring 2012, examines wage inequality in Ireland between 1994 and 2007. The ‘Celtic Tiger’ label arose from the dramatic increase in economic growth in Ireland between 1994 and 2000 when the average annual increase in real gross national product (GNP) was 7%. Growth was lower in 2001–2002 but returned to 4%–6% per year up to 2007 when Ireland’s GNP per capita was among the highest in the European Union (Voitchovsky et al, 2012, p. 101).

According to the study’s authors, ‘Ireland offers a valuable case study of the evolution of wage inequality in a period of exceptional growth in output, employment and incomes from 1994 to 2007’. The study analysed data from two sources.

The first was the Living in Ireland Survey (LIIS), a household panel survey carried out by ESRI which formed the Irish component of the European Community Household Panel (ECHP). This survey ran from 1994 to 2001.

The second was the Statistics on Income and Living Conditions (SILC), a household survey conducted by the Central Statistics Office (CSO) as part of the wider European Union Statistics on Income and Living Conditions (EU-SILC), which replaced the ECHP.

Key findings

The key finding was that ‘dispersion in hourly earnings across all employees fell very sharply indeed to 2000, before bouncing back somewhat by 2007’. The income data analysed show that:

The bottom decile was stable 1994–99, rose from 0.51 to 0.59 of the median from 1999 to 2000, and by 2007 was 0.56; the top decile fell from 2.33 to 2.10 times the median from 1997 to 2000, then rose to 2.26 by 2007.

(Voitchovsky et al, 2012, p. 129)

The authors identified declining returns to both education and work experience during the period which ‘meant that those with higher levels of education and more experience, who tend to be higher up the distribution, saw their earnings grow less rapidly than others’. They suggest that ‘these declining returns may be associated with the substantial immigration of relatively highly skilled workers attracted by the availability of jobs in a very rapidly expanding economy’. In addition, the increase in the earnings of those towards the bottom of the income distribution was seen as ‘related to the introduction of the minimum wage in 2000’, which anchored ‘the bottom of the distribution at a higher proportion of the median from then onwards’.

The study also found that a worker’s ‘occupation’ began to play a more important role in wage dispersal by the end of the period under study. The ‘estimated return to being an employer or manager or a professional (controlling for education and experience)’ increased over the period. The authors noted that ‘extra wage increases awarded to the public sector during this period as a consequence of benchmarking could also have played a part’.

Background

The Public Service Benchmarking Body was set up in 2000 to establish fair comparisons between the pay of public service workers and similar groups in the private sector. Its first report (736Kb PDF) published on 30 June 2002 recommended public sector pay increases averaging 8.9% on top of the national wage agreement. A second report (746Kb PDF) published on 21 December 2007 found that the vast majority of the state’s 300,000 public servants should not receive any pay increase other than the rises agreed on as part of normal national pay negotiations (IE0207203N and IE0801059I).

Reference

Voitchovsky, S., Maitre, B. and Nolan, B. (2012), ‘Wage inequality in Ireland’s “Celtic tiger” boom’, The Economic and Social Review, Vol. 43, No. 1, 2012, pp. 99–133

Roisin Farrelly, IRN Publishing