Irish Manufacturing Industry - Recent Wage, Price and Productivity Developments. Quarterly Economic Commentary, December 1982

Keenan, J. G. (1982) Irish Manufacturing Industry - Recent Wage, Price and Productivity Developments. Quarterly Economic Commentary, December 1982. [Working Paper]

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Abstract

Economic theory suggests that increases in money wages paid by firms greater than increases in output prices will lead to a fall in employment if there is not compensating productivity growth or flexibility of profit margins. The main aims of this paper are to consider, firstly, developments in the cost structure of Irish manufacturing industry if only the basic terms of the National Wage Agreements had been paid and secondly, to consider actual developments in the cost structure. To the extent that our traded goods are not perfect substitutes for traded goods elsewhere in the world economy we can influence the world price of Irish traded goods, so that the more our goods deviate from the "perfect substitutes" position the less the effect on output and employment of any adverse cost developments. In this paper the influence of cost increases on output prices is not considered; rather it is thought that the primary effect of these influences will be on output rather· than price so that the "price taker" model is being implicitly assumed. Section · 1 of the paper outlines some relevant theoretical considerations which are not highlighted in many treatments of the model. This framework is then used in Section 2 to consider the developments of industry labour costs under the basic terms of the National Wage Agreements since the end of 1975. Section 3 contrasts the proposals under these wage agreements with actual developments using earnings data.

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