Why do some people earn more than others? Does inequality rise or fall during recessions? What role if any is there for government policy in tackling inequality. Does emigration increase or reduce inequality? These and similar questions have been the focus of much discussion and debate among academics, those in the media and and those charged with devising and implementing policy in recent years. The dramatic change in economic conditions in Ireland over the last 10 years provides an opportunity to examine these issues in detail.
In the research highlighted here Professor Donal O'Neill of the Labour Economics Group at Maynooth University and Niamh Holton of the Nevin Economic Research Institute use individual wage data to analyse wage inequality in Ireland, from the height of an economic boom, through a very deep recession, to the start of a recovery. In keeping with previous work they find that the dispersion in wages increased towards the height of the boom, driven largely by rising returns to skill. However the economic crisis of 2008-2013 was accompanied by a significant reduction in wage dispersion. Although the improving characteristics of the workforce increased wages for all workers over this period, this was offset by falling returns to these skills. Only workers in the lowest decile were unaffected by declining returns, resulting in a reduction in wage inequality during the recession. Furthermore their analysis highlights the important role played by the national minimum wage in this process. The provision of an effective wage floor during the Recession, played a key role in preventing wage declines amongst the lowest earners.
This paper has been puiblished in The Economic and Social Review, Vol 48(1), pp. 1-26. The published paper can be downloaded for free here.