Oireachtas Joint and Select Committees

Wednesday, 24 November 2021

Committee on Budgetary Oversight

Inflation: Discussion (resumed)

Dr. Mark Cassidy:

Since the financial crisis we have seen very modest developments in terms of wage increases. The wage increases we have seen in recent years are very welcome because when an economy is growing it is important that the benefits of that growth are spread across the economy. Wage increases are good thing. We would be concerned if wage increases across the economy as a whole are increasing faster than productivity is increasing. This means that firms are increasingly getting into a loss-making position. We are not seeing that at the moment. We are seeing that wage increases are quite strong in those sectors that are performing best and in those sectors that are most productive, and in those sectors therefore that are able to afford it. Those sectors include business and financial services, construction, and IT services.

We still have one single labour market in the economy. If wage pressures in those sectors that are best performing become generalised and we start seeing wages picking up across the economy as a whole, then those parts of the economy that are not doing as well become unaffordable and the only way they can react is to push prices further up. That is what leads to this wage-price spiral and that is where we would become concerned. We are not seeing evidence of that at present. There is no fixed timeframe when wages increase. Indeed, it is not automatically the case that higher prices lead to higher wages. What we would be looking out for, more than anything else, is when we start seeing wage pressures across an intensive labour services sector, such as hospitality. That is when the risk for the economy as a whole is that those wage increases are too much. We are not seeing that at the moment. It is something we and other countries and policymakers will certainly be keeping an eye on in the coming years.


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