Financial crisis prompted biggest reversal in real wages since war

The financial crisis of 2007-2008 precipitated the biggest reversal in real earnings in Ireland since the second World War, according to the Central Statistics Office (CSO).

The agency has collated data on the average earnings of industrial workers between 1938 and 2015, providing an insight into the shifting fortunes of workers here over the past 70 years.

The recent financial crisis saw real weekly earnings drop by 4 per cent from €642 in 2008 to €616 in 2011. This was the biggest peak-to-trough fall since the 1939-1943 period, when real earnings fell by more than 20 per cent.

The CSO data show real earnings grew by approximately 319 per cent or 2 per cent per year in the Republic between 1938 and 2015.

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Even during the two oil price shocks of the 1970s, which prompted extremely high levels of inflation, real earnings here continued to rise, by an average of 4.8 per cent per annum.

As a result, the 1970s decade represents the largest increase in the purchasing power of average weekly earnings over the entire period.

In contrast, the 1980s, an era characterised by recession and mass emigration, saw average real earnings growth of just 0.9 per cent per annum, the lowest average earnings growth of any full decade in the CSO series.

Several factors influenced the evolution of wages in the 1990s including social partnership; the Maastricht convergence criteria, which paved the way for monetary union; and the emergence of the so-called Celtic Tiger.

Average real earnings growth for the decade was 1.7 per cent per annum while average annual nominal earnings growth, which discounts the effects of inflation, was 4.1 per cent.

The relatively small gap between real and nominal earnings reflects a growing economy with a good supply of labour and competitive labour costs, the CSO said.

In the 2000s, a booming export-led economy saw average nominal earnings rise each year up to 2008, when the crisis hit. Average real earnings, however, only increased each year to 2005 after which inflation outpaced earnings growth for a number of years.

The latter part of the boom saw a rapid increase in prices which eroded Ireland’s competitiveness.

From 2011 onwards, a period of very low inflation, average annual real earnings have increased by 0.6 per cent per annum.

The CSO figures also reveal the gender pay gap, noting it fell from 40 per cent in 1944 to 23 per cent in 2014.

Back in the 1950s, males worked on average 46 hours per week, falling to 41.5 hours by 2005, while females worked an average of 43.8 hours in 1955, which fell to 37 hours in 2005.