The Changing Nature of Irish Wage Inequality from Boom to Bust

Abstract

The dramatic change in economic conditions in Ireland over the last ten years provides an opportunity to examine the impact of large macroeconomic shocks on inequality. We analyse wage inequality in Ireland, from the height of an economic boom, through a very deep recession, to the start of a recovery. In keeping with previous work we find that the dispersion in wages increased towards the height of the boom, driven largely by rising returns to skill. However the economic crisis of 2008-2013 was accompanied by a significant reduction in wage dispersion. Although the improving characteristics of the workforce increased wages for all workers over this period, this was offset by falling returns to these skills. Only workers in the lowest decile were unaffected by declining returns, resulting in a reduction in wage inequality during the recession. Our analysis highlights the important role played by the National Minimum Wage in this process.