As the dust settles in the aftermath of the financial crisis and the economy continues on the road to full employment, economists and policymakers can make better judgements as to the nature and extent of the structural changes (if any) to the Irish labour market brought about by the subsequent years of recession and austerity. An analysis of wages over time as they relate to age cohort or the stage of an individual’s work-life cycle shows that wages have adjusted downwards for workers at the beginning of their careers relative to older cohorts (this holds true for many other labour market indicators for younger workers such as unemployment, underemployment and involuntary temporary employment).
According to data from the Survey on Income and Living Conditions the median wage (representing a midpoint in the distribution where equal numbers are paid more and less) for 18-24 year olds (excluding students) was 4.0% less in nominal terms in 2008 (€15,822) than it was in 2016 (€15,183). This translates to 4.7% in real terms. On average, the annual salary for workers in this group in 2016 (€16,155) was still 8.9% lower than for the same age group in 2008 in real terms. The median 25-34 year old worker in 2016 earned an annual gross salary of €29,114, 3.5% less in real terms than the equivalent worker in 2008 with average wage marginally higher (1.4% in real terms) over 8 years.
Conversely, wages for workers in the next two age groups (35-44 and 45-54) grew in the same period. Median wages for 35-44 year olds in 2016 (€38,218) were 14% higher than in 2008 (€33,349) whilst the average was up 13.2% in real terms (€39,040 to €43,909 in nominal terms). At the 45-54 year old stage of the work-life cycle, the middle earner in the distribution earned €37,156, 4.6% more in real terms than in 2008. At 14% over 8 years, the average annual salary for this age group showed the highest gains out of any under consideration, standing at €47,623 in 2016. The eldest group (55-64) are the middle performer in terms of wages of the five groups under consideration over 8 years. For this group the median gross annual wage in 2016 (€35,638) was 5.3% higher in nominal terms and 4.6% in real terms than the corresponding age group in 2008 (€33,835).
The difference in average wage growth between 18-24 year old workers and 35-44 year olds over 8 years is 20.7% whilst for the median workers between these groups, the gap over the same period was 18.6%.
This seems (in part at least) to be driven by a shift in the occupational make-up of the younger group between 2008 and 2016. The International Standard Classification of Occupations sets out nine occupational groupings divided by four skill levels. Managers and Professionals are at the top of this spectrum, whilst elementary workers are at the bottom. Between 2008 and 2016, the share of 18-24 year old workers in Managerial and Professional categories (not including students) dropped by more than 50% from 19.7% to 8.2% whilst at the bottom of the spectrum, the proportion of elementary workers more than doubled (9.6% to 24.1%). This occupational category tends to be associated with the lowest paid jobs as well as having a disproportionate number of precarious working arrangements relative to the average across occupations. Indeed, aside from occupational classification, there is strong evidence to suggest that young workers across the board are disproportionately subject to precarious work contracts and underemployment, putting further downward pressure on their wages (McDonnell & Nugent 2018).
Of particular concern however, is the 25-34 year old group whose average wage is just 0.9% higher in 2016 than in 2008 in real terms whilst the median had still not recovered to pre-crisis levels. This is loosely the stage of the work-life cycle where those completing third level education begin their career. The education profile of this group shifted considerably during the recession as many citizens, especially those in the first two age groups, were forced to choose third level education (when otherwise they may not have) or to upskill in a difficult labour market. 25-34 year olds were much more likely to have a post-leaving cert qualification or above in 2016 than in 2008 (65.4% compared to 53.3%). Growth at the top end of the skill/education spectrum was particularly strong with 20% more reporting to have a third level degree or above in 2016 than in 2008 (30.1% compared to 36.2%). Worryingly, this does not seem to have transferred to employment as evidence suggests that the occupational make up of this group has also shifted markedly between 2008 and 2016, but in the opposite direction. SILC data between 2008 and 2016 shows a 25% drop in the proportion of workers in Professional and Managerial occupations (40.9-30.5%) and a more than 60% rise in the share of workers in the elementary professions (8.7%-14.1%). This has obvious implications for the expected lifetime earnings of younger Irish workers and the economic returns to education and is evidence of a possible shift in the Irish labour market towards a higher proportion of low skilled (and by extension, low paying) jobs. What is driving this shift is less clear but some is likely to be related to the favourable tax treatment of Accommodation and Food, which has supported strong employment growth in a sector where conditions tend to be less attractive for workers, much of the employment tends to be seasonal and pay tends to be low. This has been occurring at a time of decline in employment in Industry and Construction, two sectors that tend to pay relatively better wages.
This has further implications for young workers in an environment where housing costs are spiralling. Two average earners in the 25-34 year old bracket earned €65,750 in 2016. Applying the 2.1% national average wage growth recorded by EHECS in 2017 to their wages in 2016 means that this couple is eligible for a mortgage of €234,957 (3.5 times their gross salary). With a 10% deposit, this couple would be looking at a property of a maximum of €258,000, which is not enough to buy an average 3-bedroom semi-detached house in any area in Dublin. With average rents at all-time high everywhere except Donegal, it is no wonder the number of adults living at home with their parents doubled between 2006 and 2016 (460,000).
These developments have occurred in the context of substantial real growth in output between 2008 and 2016. Modified Gross National Income per capita or GNI*, a new measure of output which attempts to strip out the distortive effects of the activities of multinationals for a better indicator of how the real economy is performing grew by 33.2% between 2012 and 2016. This raises serious questions about the distribution of the gains from Irish growth.