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Donal O’Neill, Olive Sweetman and I have been working on the issue of wage flexibility in Ireland, and have put our initial results into a working paper. Here’s the abstract:

There is considerable debate about the role of wage rigidity in explaining unemployment. Despite a large body of empirical work, no consensus has emerged on the extent of wage rigidity. Previous attempts to empirically examine wage rigidity have been hampered by small samples and measurement error. In this paper we examine nominal wage flexibility in Ireland both in the build up to, and during the Great Recession. The Irish case is particularly interesting because it has been one of the countries most affected by the crisis. Our main analysis is based on earnings data for the entire population of workers in Ireland taken from tax returns, which are free of reporting error. We find a substantial degree of downward wage flexibility in the pre-crisis period. We also observe a significant change in wage dynamics since the crisis began; the proportion of workers receiving wage cuts more than doubled and the proportion receiving wage freezes increased substantially. However, there is considerable heterogeneity in wage changes, with a significant proportion of workers continuing to receive pay rises at the same time as other were receiving pay cuts.

The full paper is linked here.

Edit on December 17: link changed to working link

The FT reports on capital market perspectives in relation to Ireland’s “clean exit” – here.

In an interview broadcast today as part of RTE’s This Week show, NTMA chief executive John Corrigan made some comments on the OMT programme.

Colm Ó Mongáin: If we had applied for extra conditionality we would have qualified then for this European Central Bank bond-buying programme so was there any sense that applying for a credit line would offset the risk that were there trouble further down the line and a spike in European bond yields we would be ok because the European Central Bank would be able to buy Irish bonds?

John Corrigan:  Well, the take on that is … is unclear in the sense that the OMT, which is the jargon for it, which is the programme operated by the central bank, which hasn’t been triggered yet, the precise terms and conditions for accessing that haven’t been laid down, number one. And number two, that programme is designed to address systemic issues which might arise in the markets. So, if, even still we were caught up in systemic issues as part of a wider problem to the extent that OMT was triggered we would still be in line to benefit from that.

Most of the ‘what if’ scenarios raised this week following the decision not to pursue a precautionary credit line focussed on domestic concerns about the Irish economy rather than systemic ones for the euro area. 

The question seemed a perfect opportunity for John Corrigan to say that Ireland is already eligible to be considered for OMT without the necessity for the additional conditionality that a precautionary credit line might bring.  He is right that “the precise terms and conditions haven’t been laid down” but we do have this very brief outline of OMT which provides some guidance on which countries are eligible to be considered for OMT.

Coverage

Outright Monetary Transactions will be considered for future cases of EFSF/ESM macroeconomic adjustment programmes or precautionary programmes as specified above. They may also be considered for Member States currently under a macroeconomic adjustment programme when they will be regaining bond market access.

It is pretty obvious that Ireland is covered by the second sentence.  As part of the existent EU/IMF programme there has already been strict conditionality imposed on Irish policy for 2014.  If there is an asymmetric shock that hits Ireland which can be alleviated by central bank bond purchases then the ECB’s Governing Council can decide to activate OMT for Ireland. This week’s decision had no impact on that.

As long as Ireland is “regaining bond market access” (which is admittedly subjective) then Ireland is eligible to be considered for OMT and a credit line is not a necessity for it.  It is not clear to me why John Corrigan did not say as much today.

Transcript and video link at Broadsheet – here.

A Department of Finance statement is here and the Taoiseach’s statement to the Dáil is here.