IDEAS home Printed from https://ideas.repec.org/a/cbi/qtbart/y2023m09p89-123.html
   My bibliography  Save this article

Earnings growth under high inflation

Author

Listed:
  • Boyd, Laura

    (Central Bank of Ireland)

  • Keenan, Enda

    (Central Bank of Ireland)

  • McIndoe-Calder, Tara

    (Central Bank of Ireland)

Abstract

The Irish economy is currently experiencing a tight labour market and high inflation. Using the framework of the Phillips curve – which relates changes in wages to labour market tightness and inflation - we find that since 2018, nominal earnings growth has been lower than this model would predict. The gap between observed and estimated earnings growth based on the Phillips curve widened to 1.3 percentage points in 2022. Our analysis finds that this gap most likely reflects a delayed catch-up of wages to the sharp drop in real incomes in 2022. Fiscal supports and savings may also have contributed to dampening wage pressures by providing temporary cushioning to households. Our results suggest that a degree of real wage catch up is likely over the medium term. However, with the economy now operating at full capacity, it is important that the fiscal stance does not add further stimulus to the economy.

Suggested Citation

  • Boyd, Laura & Keenan, Enda & McIndoe-Calder, Tara, 2023. "Earnings growth under high inflation," Quarterly Bulletin Articles, Central Bank of Ireland, pages 89-123, September.
    • Handle: RePEc:cbi:qtbart:y:2023:m:09:p:89-123
    as

    Download full text from publisher

    File URL: https://www.centralbank.ie/docs/default-source/publications/quarterly-bulletins/quarterly-bulletin-signed-articles/earnings-growth-under-high-inflation.pdf?sfvrsn=cf219c1d_5
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Byrne, Stephen & McIndoe-Calder, Tara, 2019. "Employment Growth: Where Do We Go From Here?," Quarterly Bulletin Articles, Central Bank of Ireland, pages 122-148, July.
    2. Cevat Giray Aksoy & Jose Maria Barrero & Nicholas Bloom & Steven J Davis & Mathias Dolls & Pablo Zarate, 2023. "Working from Home Around the Globe: 2023 Report," EconPol Policy Brief 53, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Laurence Ball & Sandeep Mazumder, 2019. "A Phillips Curve with Anchored Expectations and Short‐Term Unemployment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 111-137, February.
    4. McGregor, Alan, 1978. "Unemployment Duration and Re-Employment Probability," Economic Journal, Royal Economic Society, vol. 88(352), pages 693-706, December.
    5. Byrne, David & Zekaite, Zivile, 2018. "Missing wage growth in the euro area: is the wage Philips curve non-linear?," Economic Letters 9/EL/18, Central Bank of Ireland.
    6. Dao, Mai & Dizioli, Allan Gloe & Jackson, Chris & Gourinchas, Pierre-Olivier & Leigh, Daniel, 2023. "Unconventional Fiscal Policy in Times of High Inflation," CEPR Discussion Papers 18435, C.E.P.R. Discussion Papers.
    7. Jenny Osborne-Kinch & Caroline Mehigan & Maria Woods, 2020. "Understanding the presence of MNEs in Ireland as an end user," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Bridging measurement challenges and analytical needs of external statistics: evolution or revolution?, volume 52, Bank for International Settlements.
    8. Lydon, Reamonn & McIndoe-Calder, Tara, 2021. "Saving during the pandemic: Waiting out the storm?," Economic Letters 4/EL/21, Central Bank of Ireland.
    9. Violaine Faubert, 2021. "Is the Irish Phillips Curve broken?," The Economic and Social Review, Economic and Social Studies, vol. 52(4), pages 397-437.
    10. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    11. Cunningham, Kevin & Garabedian, Garo & Zekaite, Zivile, 2022. "A snapshot into inflation and earnings expectations by Irish residents," Economic Letters 2/EL/22, Central Bank of Ireland.
    12. Reddan, Paul & Rice, Jonathan, 2017. "Exchange Rate Pass-Through to Domestic Prices," Economic Letters 08/EL/17, Central Bank of Ireland.
    13. Keenan, Enda & Lydon, Reamonn, 2020. "Wage subsidies and job retention," Economic Letters 11/EL/20, Central Bank of Ireland.
    14. Byrne, Stephen & Zakipour-Saber, Shayan, 2020. "Evaluating the Determinants of Irish Inflation," Economic Letters 01/EL/20, Central Bank of Ireland.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antonio Ribba, 2020. "Is the unemployment–inflation trade‐off still alive in the Euro Area and its member countries? It seems so," The World Economy, Wiley Blackwell, vol. 43(9), pages 2393-2410, September.
    2. Fabian Eser & Peter Karadi & Philip R. Lane & Laura Moretti & Chiara Osbat, 2020. "The Phillips Curve at the ECB," Manchester School, University of Manchester, vol. 88(S1), pages 50-85, September.
    3. Yhlas SOVBETOV, 2019. "Phillips Curve Estimation During Tranquil and Recessionary Periods: Evidence From Panel Analysis," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 69(1), pages 23-41, June.
    4. Czudaj, Robert L., 2023. "Expectation Formation and the Phillips Curve Revisited," MPRA Paper 119478, University Library of Munich, Germany.
    5. Luís Aguiar-Conraria & Manuel M. F. Martins & Maria Joana Soares, 2019. "The Phillips Curve at 60: time for time and frequency," NIPE Working Papers 04/2019, NIPE - Universidade do Minho.
    6. Simone Auer, 2018. "Labour market conditions and wage inflation in CEE economies," Questioni di Economia e Finanza (Occasional Papers) 460, Bank of Italy, Economic Research and International Relations Area.
    7. repec:zbw:bofrdp:2019_012 is not listed on IDEAS
    8. Daniel Sebastião Abreu & Artur Silva Lopes, 2021. "How to disappear completely: nonlinearity and endogeneity in the New Keynesian Wage Phillips Curve," Applied Economics Letters, Taylor & Francis Journals, vol. 28(9), pages 774-778, May.
    9. Alex Domash & Lawrence H. Summers, 2022. "How Tight are U.S. Labor Markets?," NBER Working Papers 29739, National Bureau of Economic Research, Inc.
    10. Luís Aguiar-Conraria & Manuel M. F. Martins & Maria Joana Soares, 2019. "The Phillips Curve at 60: time for time and frequency," CEF.UP Working Papers 1902, Universidade do Porto, Faculdade de Economia do Porto.
    11. Boyd, Laura & Byrne, Stephen & Keenen, Enda & McIndoe Calder, Tara, 2022. "Labour market recovery after a pandemic," Quarterly Bulletin Articles, Central Bank of Ireland, pages 89-129, July.
    12. Michael A. Clemens, 2017. "The Meaning Of Failed Replications: A Review And Proposal," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 326-342, February.
    13. Frédéric Gannon & Stéphane Hamayon & Florence Legros & Vincent Touzé, 2014. "Sustainability of the French first pillar pension scheme (CNAV): assessing automatic balance," SciencePo Working papers Main hal-03460192, HAL.
    14. David G. Blanchflower & Andrew Oswald, 1995. "International Wage Curves," NBER Chapters, in: Differences and Changes in Wage Structures, pages 145-174, National Bureau of Economic Research, Inc.
    15. Carlos Medel, 2017. "Forecasting Chilean inflation with the hybrid new keynesian Phillips curve: globalisation, combination, and accuracy," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 20(3), pages 004-050, December.
    16. Kamel Helali & Thouraya Boujelbene Dammak, 2019. "Examining the Role of Structural Change in a Phillips Curve: Bivariate GARCH DCC Analysis," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 385-393, September.
    17. Tomasz Grodzicki & Mateusz Jankiewicz, 2020. "Forecasting the Level of Unemployment, Inflation and Wages: The Case of Sweden," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 400-409.
    18. Bordo, Michael D. & Rockoff, Hugh, 2013. "The Influence Of Irving Fisher On Milton Friedman’S Monetary Economics," Journal of the History of Economic Thought, Cambridge University Press, vol. 35(2), pages 153-177, June.
    19. Christian Johnson & George G Kaufman, 2007. "Un banco, con cualquier otro nombre…," Boletín, CEMLA, vol. 0(4), pages 185-199, Octubre-d.
    20. Ivan Kitov & Oleg Kitov, 2013. "Does Banque de France control inflation and unemployment?," Papers 1311.1097, arXiv.org.
    21. Ersin Yavuz & Emre Kilic & Abdullah Emre Caglar, 2024. "A new hypothesis for the unemployment-environment dilemma: is the environmental Phillips curve valid in the framework of load capacity factor in Turkiye?," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(11), pages 29475-29492, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:qtbart:y:2023:m:09:p:89-123. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fiona Farrelly (email available below). General contact details of provider: https://edirc.repec.org/data/cbigvie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.