Irish wages reflect market economy at work

There are two official sources of information on Irish wages and salaries, both published by the CSO.  One is an aggregate figure for the total paid out to employees and is published annually as part of the National Accounts . That series shows a modest increase in average pay over the past few years ( dividing total pay by annual employment ) which is at variance with the other data source,  a quarterly survey of employers across 13 industry sectors, which is also used to calculate total labour costs i.e. adding items such as employers’ PRSI.  The quarterly figures are also used to compile an annual data set and the CSO recently released the 2014 results.

Average  earnings came in at €35,768 per annum , marginally (0.2%) down on the previous year which in turn had seen another modest fall of 0.7%.  Pay peaked in 2009 at over €36,800 so the past five years has seen a fall in excess of €1,000  or 3%. Remember this is gross pay and takes no account of changes in tax and PRSI, and the average tax rate has risen over that period. Consumer prices are also higher, by 4%, so real gross pay has  fallen by almost 7% with a larger fall evident in real take-home pay.

The average  earnings figure for the whole economy masks  divergence across sectors, as one might imagine in a market economy with no central bargaining mechanism. Earnings in industry, for example, rose by 3.6% last year and continued to rise through the recession, with the result  that pay in that sector is now 5.7% above the 2009 figure. Pay in Information and Communication has risen  at an even faster pace over the past five years, by 10.7%, with the financial sector also seeing a strong increase of 8.3%, although that was strongly influenced by a 4% rise in 2014. Employees in the retail sector have also experienced a rise in gross earnings since 2009, of 4.8%.  Pay is down across all other areas  of the private sector, however,  and the public sector has seen notable  falls, including 11.5% in Health, 10.6% in Education and 7.3% in Public Administration.

The 2016 Budget may deliver an increase in public sector pay but the general pick up in domestic economic  activity since 2013  is  already having a discernible impact on private sector earnings. Construction output has rebounded  and 2014 saw a 4.6% increase in average pay in the sector, following a  2.1% rise in 2013. Similarly, the upturn in tourism is beginning to benefit employees in the Food and Accommodation sector, with pay there rising by 3.4% last year. Indeed, total pay in the private sector as a whole rose by 0.6% in the year to the first quarter of 2015 (   one should note that the quarterly data is prone to substantial revisions) and the consensus view is that the next few years is likely to see average earnings on a rising trend given the pattern of employment growth and the steady decline in the unemployment rate, which is now under 10% from a high of over 15%. Some sectors are likely to do better than others, as is inevitable in  a market economy with a  flexible labour market, although  the  recent experience of the US and the UK  suggests that  the pace of growth in average pay is  likely to be  subdued by historical standards.

Published by

Dan McLaughlin

Economics Lecturer and Commentator