Where are the Wage Cuts?

Q1 Earnings data were published by the CSO ten days ago, and I’ve only just got around to having a look at them. The data refer only to Industry (Manufacturing, Mining & Utilities) and Financial Intermediation; the new Earnings, Hours and Employment Costs Survey on which these data are based also collects for Construction and Distribution and Business Services, but data on these sectors haven’t been published yet, so the most up to date figures for these refer to December 08.

I went to look at the data because I had a hunch that earnings cuts were being driven by flat hourly pay and falling hours.

I was concerned about this as it seems to me that hourly earnings are more important than weekly earnings for competitiveness – where hours of work have been cut, and earnings have fallen only for this reason, we should see this being reversed if and when demand picks up again, so this won’t result in a long term improvement. (It is possible that the recession has allowed employers to reduce overmanning/featherbedding and that this will be a permanent effect on productivity, but I doubt if that’s the main story.) 

In any case, I was wrong: the flat pay just doesn’t seem to be there. In fact, the short answer to the question in the title is: in Financial Intermediation and Mining. Everywhere else, there are wage rises.

For industrial workers, average hourly earnings rose by 5.9% from Q108 to Q109. This figure includes bonuses and overtime payments. Weekly hours fell by 2.4%, though, so the increase in average weekly earnings was just 3.4%. Within industrial workers, weekly earnings of those in Mining fell by 8.1%, but this was entirely due to a fall in hours of work, with hourly wages actually rising by 1.5%.

Within Industry, a breakdown by occupational category is also given. Managers & professionals’ hourly pay rose by 3.5%, and their weekly pay by 2.9%; Production workers’ hourly pay rose by 5.2%, weekly by 1.2%; only Clerical workers’ pay has fallen – the hourly figure is down by 0.9%, and the weekly is down by 1.2%. Interestingly, the reason the headline figure – the +5.9% I mentioned above – is higher than any of these occupational category components is because of a pretty big shift in the composition of workers –  the number of Production workers has fallen by 12.3% whereas the number of Managers has risen by 2.1% and the number of clerical workers by 1.9%. So the proportion of chiefs has risen.

For Financial Intermediation, average earnings have fallen, and all the action is in bonuses. Hourly base wages have actually risen by 5.4%, but bonuses fell by 65% between Q108 and Q109. The average bonus was 30.6% of base salary in Q108 but ‘only’ 10.1% in Q109. Because of the collapse of bonuses (relatively speaking – the average industrial worker got a bonus of 7.4% of base pay in Q109), average total hourly earnings fell by 11.1% and average weekly earnings fell by 12.7%.

As I mentioned, CSO hasn’t published the Q109 figures for Construction or Services yet. But the figures for Q408 compared to Q407 showed that while average weekly pay in Construction was down 2.4%, average hourly pay was up 2.3%; and in Services, weekly earnings were up 3.1% between December 07 and December 08. No hourly figures are given.

It all seems a far cry from the heady days of April, when very large nominal pay cuts in the private sector were being discussed in the media. In a post on this blog, Colm McCarthy tentatively concluded, on the basis of some private surveys, that “[B]earing in mind the different periods covered, it looks as if the private sector pay cut overall, allowing for the small number paying increases and the larger number of freezers, has already reached 6 or 7%”. I was sceptical, but thought that 3% was quite likely.

Is it the case that Industry alone is escaping pay cuts and that when the Q1 figures come out for Construction and Services, the numbers will add up to substantial nominal cuts? Or were we just dreaming? Did we just want to believe that Irish workers were proving very amenable to the kind of cuts needed to improve competitiveness? Or is there some other detail of the data that I’m not appreciating that’s masking the truth?

32 replies on “Where are the Wage Cuts?”

@Aedín,
Another way to look at it is that hourly pay for clerical/sales/service employees in industry peaked in Q3 2008, and hourly pay for production/transport/craft/other manual workers peaked in Q4 2008. Both have fallen since. I have a hard-to-prove-immediately suspicion, also, that there’s an issue with shift in mix going on here, with more people in relatively poorly paid parts of industry losing their jobs. This would mean that the fall in pay apparent in the published figures is less than that experienced by those retaining their jobs.

The only Q1 2009 industry increase is for managers/professionals/associate professionals. Given that numbers in this group actually grew, perhaps it’s not so surprising that average pay went up. A lot of the headline increase in “industry” pay comes from a shift in mix in favour of high paid occupations, more than changes in what is paid for each type of job.

The relatively good performance of managers/professionals/associate professionals in industry on pay also needs to be viewed in the context that they have been suffering on pay relative to their equivalents in domestically traded sectors in recent years, so the modest gain they have made over the last year may be something of a correction. We should not necessarily expect to see the same in other parts of the private sector.

Aedin – I addressed this same issue (http://notesonthefront.typepad.com/politicaleconomy/2009/08/maybe-its-the-leveller-in-me-but-when-times-are-hard-we-should-all-put-our-shoulder-to-the-wheel-share-out-the-pain-and.html ). When comparing quarter for quarter – Q4 08 to Q1 09 – we find that in the manufacturing sector, overall hourly wages increased by 2.7%. However, this was not distributed evenly throughout the occupational structure. While Clerical workers suffered a -2.3 decline and production workers suffered a 0.8% decline (together, these workers make up 75% of all employees in manufacturing), the management sector experienced a 6.5% increase.

Stephen’s links are interesting in this regard. For most Irish manufacturing workers, wages are not so sticky. For those at the upper end of the enterprise food chain, they are not only sticky, they are growing.

Whatever the explanation, clearly from this, admittedly limited time span, some people are sharing the pain, some are not.

I repeat the comment I made from the weekend:

——
Wages here are laughably small compared to the UK, Switzerland and the USA – three markets whose wages I’m familiar with. For skilled workers, pay here is low enough compared to those markets that workers require non-economic reasons to stay in this market.

I already know a number of people who have left Ireland for jobs with higher wages and better conditions. If wages are dropped further, why should skilled workers stay?
——

I’m from the States and have lived here 11 years. In that time I’ve probably lost $300k in salary over that time compared to my American peers. It’s hard to tell exactly since I work in slightly different areas, but that’s a rough estimate.

I know many people who have compared jobs in Dublin and London or Dublin and Zurich and found large enough differences to justify moving themselves and their families. And those are Dublin wages – outside of the capitol you’ll find even larger wage differences.

I would suggest that Irish wages are depressed more than enough already – in fact I would argue that we are actually losing talent at this wage level. I’m not sure if you’ve noticed but labour can move now. Low wages will not attract the skilled workers we need.

I would also suggest that there are other factors to consider besides wages when considering competitiveness. A nation with poor infrastructure, poor public services and a large swath of underpaid morlocks is not a nation where the next great ideas are likely to come from.

In many respects the Irish recession looks distinctly 1980s European — very Keynesian, with real wages increasing, and very insider-outsider, with protected occupations getting higher wages and holding onto jobs (suggestive of rent-sharing with employers) while those more exposed to competition get hammered. Social partnership how are ya.

I don’t think that you should expect much evidence of change in numbers heading up to the end of 08. Despite the fact that the catastrophe was obvious late last year my experience indicates that the first significant wage impacts only took place in Q1 with most of those I’m aware of actually being implemented in early Q2. Even at the end of Q4 08 it would have taken a very brave employer to attempt to cut wages, I don’t recall that the majority of the general public genuinely believed that wages could be cut even then. By mid Q1 09 that had changed and by the time of the budget at the end of Q1 I think the mood had changed enough for employers to successfully push through cuts provided they didn’t face institutional roadblocks.

In areas where there are those roadblocks – ie significant union presences protecting wages or the “protected” occupations noted by Frank Galton above I doubt that any significant wage drops will happen this year, if at all. The news is dominated by the various skirmishes on that front but none that I’ve seen have resulted in wage cuts in real terms. However elsewhere I can’t see how there cannot be be significant reductions by the end of H1 09 when those numbers come out. While I can only point to personal (clearly anecdotal) experience in this area the numbers that I see in my field relating to the charge out costs of highly skilled staff, who are not protected by institutional closed shops or professional structures, have dropped significantly and I cannot believe that employers in those fields are universally taking the hit without passing that through to their workers.

It may be that some companies are finding it possible to eliminate under performing staff and maintaining competitiveness through the higher productivity of the remainder without cutting wages but I can’t see that a company that is managed well enough to pull that off would sit by and not attempt to execute wage cuts during what is likely to be the first period of time in our memory when widespread wage cuts are possible.

Both ISME and IBEC have recent (Q2) surveys on their websites showing a big preponderance of Freezers/Cutters over Increasers. Their data, in other words, suggest that there will have been an aggregate reduction showing up in Q2 and Q3. But Aedin’s read of the Q1 figs is reasonable, and the figs are a bit of a surprise, even allowing for composition effects and the partial coverage of CSO’s Q1 results to date. Like Joe Mansfield, I hear much anecdotal reports of cuts, but won’t believe it until the CSO says so. What we know for sure is that private sector firms have been cutting workforce across the board, and cutting hours.

Is there a link to the cso’s data?

When were the national agreement talks concluded? Q408, when ibec and the govt agreed to pay rises. so there would probably not have been many cuts in Q109.
Also a lot of companies have annual salary reviews which kick in at the start of a year, which would have been decided in the pre-xmas timeframe. I’d imagine q2 figures would show a different point of view.

Interesting that the only two areas that show a fall/flattening are financial intermediation and mining. Both of these sectors have employees that rely on bonuses for a large proportion of their income. Because of the reliance on bonus rather than ‘hourly rate’ these sectors should (and apparently are) the first to reflect downward wage pressures.
As for the rest, there is a big difference between reducing a bonus and reducing a basic hourly rate. The second has much more ‘downward stickiness’.

Two other points:

The same releases shows that the number of workers reported on the national mimimum wage has plummeted, from around 12,000 in Q1 2007 to less than half that (5,600) by Q1 2009. This says something about compostioinal changes referred above. In aggregate for B-E industries, this is a fall from 2.5% of the workforce to 1.4%, which would add the guts of 0.5% onto the computed average wage, even in the absence of any change in actual wages. This is a fare estimate as the minimum wage rose at around average wage level during this time. This is also a very interesting input into the difficult debate on the minimum wage, and will be confidently be used by both sides no doubt!

Less importantly, I wonder whether a survey like this is useful in estimating the actual hours worked. While in the past this might have been easily measured, I suspect in many enterprises, the ‘clock-in/clock-out’ procedure has vanished, and most companies don’t know how long their workers work. Do most MNCs report 37.5 hour weeks, every quarter?

Q: where are the wage cuts?
A:Here!
partner: 15% cut in hourly rate + drastic cut in hours, implemented in April ’09 (area: engineering, chemical manufacturing)

Friend: 10% cut on fixed salary, implemented in April 2009. (area: construction)
I could go on and on and on…..

Also don’t forget that a very significant portion of the workforce in engineering/construction are “self employed” or on C2’s. How would cuts affecting this sector of the workforce feed into the CSO stats?

Re: Minimum wage post above:

The 0.5% figure I mentioned would be over two years, or around 0.2% per annum. However this obviuosly only scratches the surface of what is happening in terms of composition.

Not always a valid comparison, for example while several former colleagues of mine have been dropped to a 4 day week, strictly speaking having no impact on hourly pay, they still have to complete the same amount of work they were in a 5 day week, so their increased productivity (through longer hours in the 4 days they work) takes up the difference. This may not be the norm, but it undermines an assumption in your calculations in this instance at least.

I take the point that we may need to wait until Q2, but the Central Bank survey that Colm had got his hands on when writing his piece said that 53% of firms had cut wages by an average of 8% in the three months up to March. That’s certainly hard to see in the CSO data. I suspect that the 30% response rate resulted in a strong selection bias. Anyway, I would still have expected a flattening in Q1 if firms were working up to cuts.

@GrowUp, if the extra hours your friends are working during the four days are accurately recorded by management when filling in the CSO survey, then this will show up as a cut in hourly wage. It is an interesting question, though – Ronnie touched on this too – as to how accurately hours of work are recorded in many workplaces. I guess that contracted hours are recorded in many places, rather than actual hours, in which case your comment will stand. Nonetheless, there is a noticable drop in hours in all sectors in Q109 compared to any of the previous four quarters, even for managers/professionals, so some changes are certainly being recorded.

@Ronnie O’Toole: I find the proportion on the minimum wage impossible to interpret. There are pretty substantial variations from quarter to quarter, some of which must be seasonal, but the rest could be due to either redundancies of minimum wage workers or pay rises lifting them off the minimum. I think the only way to look at this is with panel data like the NES.

[@Colm, the Carrowaystick is a pretty river in the Glenmalure Valley in Wicklow, known to anyone who’s climbed Lugnaquilla from that side].

@Aedin
I get to fill in these CSO labour surveys for an organisation I’m involved with.
For the hourly paid the details are pretty accurate but for the salaried who don’t get paid overtime, hours are not recorded so the assumption is they work a standard working week every week.

No where where I’ve worked have the salaried staff clocked in and clocked out so hard to see how the hours are accurate.

My experience on pay is employers have frozen pay i.e no increases, bonuses are gone but some were paid for 2008 – it wasn’t a total disaster. (2009 might be depending on how the second half works out). Most have shed jobs to save payroll – cutting pay is a last resort and they will cut numbers again before doing that.

As I’ve argued previously cutting numbers or hours increases productivity by default. Cutting pay doesn’t.

It would be contracted hours (the 32 remaining from the stated 40 hour week). I’ll hastilly add I’m not calling your conclusion into question based on one example, simply adding some limited detail to the picture.

Perhaps part of the answer to this paradox is the fact that, with the CSO figures, we are only talking about wages of one sixth of the workforce (industry and finance), and even then only up to end-Q1. One can’t look at a small fraction of the workforce half a year ago and know definitively that’s what’s happening elsewhere now.

A related point is how the SMEs that employ so many people around the country are captured.

Lastly, I would suggest that hourly is not always the best benchmark, as hours actually worked are captured so poorly. Surveys should ask whether wages are paid on a hourly basis or on an annual/monthly basis.

Aedin,

The figures aren’t as jumpy as they first appear. The Q4 2006-Q1 2007 rise is probably due to the 8.5% increase in the minimum wage on 1st January 2007.

After that, the figures are actually fairly stable from Q1 2007 to Q3 2008, after which they fall sharply, coinciding with the sharpest rise in the rate of unemployment (and <25 unemployment in particular). The rate of increase in the minumum wage over this time at 4.2% is in line with the rest of the economy. As such, I think an inference that layoffs dominate this fall in the number on the minimum wage is pretty convincing. the big argument for me is why they were laid off in such greater numbers (nature of contract, particular industry, the level of the minimum wage etc).

When did pay cuts become a garden-fence topic?

Google have a lovely feature to track any search on a timeline, which I only happened upon recently. Do the following:

> Search Google for “Pay cuts ireland”
> Click on “Show Options”
> On the left margin click on “timeline”
> Click on the most right-hand part of the timeline (from 2000 onwards).
> Click on the most right-hand part of the timeline (from 2009 onwards)

The resulting graph shows you that web mentions of pay cuts in Ireland peaked in February, and was noticably lower in Q2, though picked up again somewhat in July. I’m not sure if this proves anything, though its a lot of fun.

@Stephen Kinsella. Google trends is also a good tool for predicting the present. For example, typing ‘Irish economy’ into the search bar shows the spike in interest in the topic since September last year. http://tiny.cc/RFjZv

Can also be used to compare different topics. For example comparing ‘irish economy’ with ‘fianna fail’ produces this result: http://tiny.cc/HZxOE

“The relatively good performance of managers/professionals/associate professionals in industry on pay also needs to be viewed in the context that they have been suffering on pay”

Not to mention that many firms will cut salaried staff and rely on their managers’ unpaid overtime to pick up the slack.

What matters in manufacturing is UNIT wage costs, rather than gross wage rates. It looks as though these have fallen in Ireland in 2009 H1, due to a large increase in manufacturing productivity. By my reckoning, manufacturing productivity in Ireland in 2009 H1 was about 6% to 7% higher than in 2008 H1. In every other EU country, manufacturing productivity was about 10% to 15% lower in 2009 H1 than in 2008 H1, due to massive falls in output (down around 20% in most EU countries) and relatively small falls in manufacturing employment (due largely to very restrictive labour laws which make it difficult to lay off employees even when output is collapsing). If UNIT wage costs are the yardstick (as they should be), there has clearly been a massive improvement in manufacturing wage cost competiveness in Ireland in 2009. That may help explain why manufacturing output and exports have fallen far less in Ireland than in any other EU country.

As for overall costs in Ireland, I’m typing this while on holiday in Bejing. Wages here are clearly much lower than in Ireland. But, eating and drinking in restaurants is about the same, while hotel accomodation is more expensive. Other purchases, such as CD players and digital cameras, were also at least as expensive as in Dublin.

The Irish Times has a headline today stating that Dublin has the fourth best paid professionals in the world. This figure comes from the UBS price and earnings report, available here: http://tiny.cc/UhH8C

The Irish Times headline apart (which is based on net pay and therefore more a factor of the low direct tax here) it is a very good and comprehensive report, well worth a look for anyone looking for international price/wage comparisons.

Brian Sheehan, editor, Industrial Relations News (IRN)

I refer you to recent IBEC survey of member firms – see their website. It shows more marginally production workers getting pay rise over those suffering pay cut. but vast majority of all worker categories having pay frozen. In IRN (Industrial Relations News) these figures come as no surprise. We largely cover the unionised sector and report only verified pay settlements (confirmed with company and union). The IBEC survey tallies with our findings and with the CSO trend. Colm McCarthy’s prognosis may well turn out in the end, but it hasn’t happened yet. The core message is: while incomes are down, basic pay is being frozen in most places, and pay cuts and rises are about equal. It is important to note that major media organisations -like RTE, Irish Times, Independent – have introduced pay cuts with formal staff agreement (note: a legal requirement) and this could be influencing the overall tenor of reporting about ‘everyone’ suffering pay cuts in private sector.

@Brian Sheehan,

that’s interesting, thanks. It’s hard to know how representative the IBEC surveys are. For example, the current one shows an average decrease of 4% in Management pay in the six months to May, whereas CSO shows (for industry) a rise of 10.5% in the six months to March; for Finance, the rise in base pay is 2.7%. That’s quite a difference, even taking the timing difference into account.

Of course, it’s not impossible that both IBEC and CSO are right at the same time. It could be that composition effects within occupational groups could reconcile the two. For example, say that all the production workers who lost their jobs were the lowest paid ones. Then average pay amongst the remainder will increase even with pay freezes, and may even still increase a bit if some workers are having pay cuts. Without knowing the details of the earnings distribution, it’s hard to know if this is what’s going on, but I’d be surprised. There haven’t been cuts in numbers employed in Managers and Clerical according to CSO, so that explanation won’t work there. I suspect that pay cutters are much more likely to respond to these surveys and that’s the explanation.

On the other hand, I would expect pay cuts to be less frequent in unionized firms, so the fact that you at IRN are seeing any cuts being reported is interesting. Do you have any breakdown by date, sector, occupation, firm size etc. that you could give?

Your point on media pay cuts affecting the reporting of what’s going on is well taken.

By Post Author

On your last question, as a purely subscription based magazine, it is natural we provide/reserve more material for our subscribers.

That aside, what we do is record wage settlements, in a similar way to Incomes Data Services (IDS) in the UK. Both ‘sides’ of industry have to rely on our accuracy in this regard

On the IBEC survey, you can check it yourself. It is all freely available on their website (IBEC Business Sentiment Survey, conducted during May 2009. The survey is based on a large sample of about 2,500 IBEC members, weighted by sector and firm size. The response rate was 20%. While the respondents are probably slightly more representative of manufacturing than of services, about half of them have less than 50 employees.) IBEC membership is at least 50% non-union at this stage, if not more. They have more detail on management pay which you might find interesting as well as on ‘salaried’ staff. I have provided a snap shot of their survey on the free EU funded service http://www.eurofound.europa.eu/eiro/

Other recent surveys of interest include the Hay Group. You can contact them directly.

What is important is to get an accurate picture of what is happening, and to be sure we understand the difference between a fall on overall remuneration (which is certainly happening) and an actual cut in salary (more limited so far). That difference is missed in much of the rather glib coverage of this issue. Pay freezes, whether formally announced or, de facto, predominate in all sectors.

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