Today’s Irish Times carries an interview with Joseph Stligitz. A striking element is his advocacy of a uniform cut in wages and prices (the internal devaluation option), as the substitute for the nominal devaluation strategy that has been pursued by several countries with independent currencies. He also highlights the importance of fairness in pursuing this option. While he does not describe in detail how this can be achieved, my own work has advocated a twin-track strategy: wage reductions, coupled with more vigorous pro-competition policies to ensure that wage cuts are not simply absorbed into higher markups.
Author: Philip Lane
This new paper responds to the recent CSO study and also tackles several new dimensions of this question.
Paper here.
Abstract:
This paper provides a sub-sectoral analysis of changes in the public-private sector pay gap in Ireland between 2003 and 2006. We find that between March 2003 and October 2006 the public sector pay premium increased from 14 to 26 per cent and that there was substantial variation between subsectors of the public service. Within the public service the premium in 2006 was highest in Education and Security Services and lowest in the Civil Service and Local Authorities. In the private sector the pay penalty in 2006, relative to the public sector, was most severe in Hotels & Restaurants and in Wholesale & Retail and least severe in Financial Intermediation and Construction. The paper tests for the sensitivity of the pay gap estimates using a matching framework, which provides a stronger emphasis on job content, and finds the results to be broadly comparable to OLS. Finally, the study highlights the problems associated with controlling for organisational size in any study of the public-private pay gap in Ireland.
The ECB recently issued this opinion on the proposal by Cyprus to issue ‘special’ government bonds that may be used as collateral to obtain liquidity from the ECB.
This FT article reports an interesting development in Latvian policy, where the interplay with foreign-owned banks and currency policy are important features.