Wage Bill Change in Ireland during Recession-How Have Employers Reacted to the Downturn

1. INTRODUCTION 1.1 General Background The evidence presented in this paper focuses on explaining how employers have acted in trying to adjust their total wage bill between 2009 and 2011. This is an update of analysis previously published in July 2010 covering the period from the third quarter of 2008 to the third quarter of 2009 (CSO, 2010). The basic premise underlying the analysis is that employers can change their wage bill through three different components, namely: * Level and composition of employment * Hours worked by employees * Basic rate of pay The paper presents evidence as to how employers have adjusted their wage bills through these three components. The data source for the analysis is the Earnings, Hours and Employment Costs Survey (EHECS). This survey was introduced by the CSO in 2005, initially for a limited number of sub-sectors of the economy. In the first quarter of 2008 the survey was expanded to cover all sectors of the economy. The introduction of EHECS sought to develop a comprehensive and comparable set of statistics on earnings, hours worked and employment. While this goal was achieved with the publication of the first set of results in late 2009, it was immediately evident that while the survey was fit for the purpose it was designed the range of regularly published statistics did not answer many of the questions data users had. Two particular questions raised were: * To what extent did aggregate level movements in earnings mask the level of activity actually taking place? * To what extent were changes in the composition of employment influencing average earnings? Specifically, as employment loss was heaviest in lower paid occupations to what degree were earnings being falsely inflated as a result? In relation to the first question the context, both at the time in 2009 and more recently, has been relatively low levels of movement in published average earnings levels. Figure 1.1 shows that while fluctuations have occurred, the net effect on average hourly earnings from Q1 2008 to Q3 2011 has been only a slight drop (0.5%), while average weekly earnings have fallen by somewhat more (-2.5%) due to reductions in average weekly paid hours (CSO, 2009 to date). The bulk of this paper will focus on answering the first question by the presentation of evidence on the range of wage bill changing activities being engaged in by employers. In particular it will be shown that employers have often focused their activities on changes in employment which may or may not have any impact on average earnings levels for remaining employees. However, patterns of activity have changed over time and this will be discussed. The nature of the analysis undertaken also allows some insight to be gained into the question of the effect of compositional change and this will be dealt with later in the paper. [FIGURE 1 OMITTED] As already mentioned the source of data for this analysis is EHECS. A comprehensive set of information on earnings (and its components), paid hours and employment is collected from a large sample of employers on a quarterly basis. An aspect of EHECS relevant to the question of compositional change is that it incorporates a three way occupational split for all data collected. The three groups were: * Managers, professionals and associated professionals * Clerical, sales and service employees * Production, transport, craft and other manual workers As such it is not only possible to look at the change in employment at the aggregate level but also assess the impact on average earnings of changes in the composition of employment (across the three occupational groups). Other aspects of changes in the composition in employment cannot be corrected for using the EHECS data source but it does offer some insight into high level compositional change. …