The rise in aggregate wages and employee numbers

We know that employment growth as measured by the QNHS is now the most reliable ‘snapshot’ indicator of the performance of the Irish economy.  There are so many quirks to every observation of GDP and GNP that renders many patterns in them meaningless.

Total employment reached its nadir towards the end of 2012 and has been growing for the 30 months since.

The rough summary of employment is:

• Peak: 2,147,000 in Q2 2008
• Trough: 1,836,000 in Q3 2012 (down 311,000 or 14.5% from peak)
• Current: 1,930,000 in Q1 2015 (up 94,000 or 5.1% from trough, still 10.1% below peak)

But what impact has this recent rise in employment had on earnings?  Here is compensation of employees received by the household sector.

The rough summary for quarterly earnings is:

• Peak: €21,017 million in Q4 2008
• Trough: €16,996 million in Q1 2011 (down €4,021 million or 19.1% from peak)
• Current: €19,679 million in Q4 2014 (up €2,683 million or 15.8% from trough, still 6.3% below peak)

It can be seen that earnings fell further and have recovered faster.  This can be seen if we compare the annual changes in both.

Earnings fell faster but have been growing at around 5 per cent for the past year compared to around 2 per cent for employment growth.

The final issue is who has been paying the wages.  Here are wages paid by the corporate, government and household sectors.

Unsurprisingly, the corporate sector is by far the largest source of employee compensation and most of the growth comes from here.  Employee compensation from the government sector continues to decline (slowly) and payments from the household sector are rising (but from a low base).

If we index the above series we can get a better idea of the relative trends.  We will set them all equal to 100 in Q4 2008 when the total reached its peak.

Although there is some volatility it can be seen that the relative decline in compensation paid by the corporate and government sector were roughly in line through 2011 and 2012.  The series diverge from the start of 2013 with the red line rising and green line continuing its gradual decline. [It should also be noted that the green line does not reflect the Public Sector Pension Levy.]

The relative fall in wages paid by the household sector was the largest (possibly related to the self-employed and the nature of certain employments in the construction sector) but that too has been rising since the start of 2013.

Of course, these are aggregate data and take no account of the underlying employment totals.  So while aggregate earnings in the public and private sector may have tracked each other during the downturn, these reductions were achieved through different means.  This can be seen if we look at the number of employees in each sector.

And it is perhaps more easily identified if we index each. We will set them equal to 100 in Q2 2008.

Employee numbers in both the public and private sectors fell in 2009 and 2010 but private sector employee numbers fell much more rapidly up to the middle of 2011, from which time they began to show a tentative increase with these becoming more consistent from the beginning of 2013.  The ‘bump’ in public sector employment at the start of 2011 relates to Census 2011 but apart from that it has been a steady decline in numbers since 2009. 

As can be seen the relative fall in employee numbers in both sectors relative to the middle of 2008 is now identical – though the paths there were very different.

Private sector employee numbers reached a trough in Q1 2011 and have grown 94,500 (or 8.5%) since.  Public sector employment did not reach a trough until Q3 2014 (local minimum?).  Since then it has grown 2,700 (or 0.7%) since.  The annual changes for each are:

Although aggregate earnings to private sector employees are clearly rising, the story is not so cheery if we look at self-employed earnings.  The series shown below includes a bit more than self-employed earnings but it does not show the same increase that was for employee compensation shown above.

There is a hint of an increase over the past the two years – but no more than that.

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