Wage flexibility and the great recession: The response of the Irish labour market

In this paper we examine nominal earnings flexibility in Ireland during the Great Recession. The Irish case is particularly interesting because it has been one of the countries most affected by the crisis. Using tax return data that are free of reporting error and cover the entire population of workers, we find a substantial degree of downward nominal wage flexibility in Ireland in the pre-crisis period. Furthermore, we observe a significant change in wage dynamics since the crisis began. It was only after the peak crisis period that pay freezes became a feature of the Irish wage change distribution.