As story in today's Irish Times highlights that research conducted by the Central Bank suggests only 1% of firms have looked at pay cuts in the last 5 years, and that most firms are choosing layoffs as a means of reducing their overall labour costs.
Despite Ireland suffering one of the severest recessions in Europe over that period, wage cuts were much rarer here than on average in the 14 countries included in the study. Only in Spain and Italy was the percentage of companies who reduced pay lower. The Czech Republic and Lithuania were at the other end of the spectrum, with more than 8% of companies cutting wages.
The most commonly cited reason for not cutting wages among Irish firms was a concern it would damage company morale. The second most cited reason was the fear that the best employees would leave to take up employment elsewhere.
Another reason why companies tend not to cut wages are the requirement to gain the employees agreement to such a change. This would be seen as a change to their Terms & Conditions of Employment and as such would require their consent, which may be hard to attain. Failure to gain consent and still cut wages could lead to a claim of constructive dismissal.
1% seems to be somewhat low in the overall scheme of things, given the high level of redundancies in the last 5 years, and wage cuts are usually a precursory to redundancies. Do you think this is an accurate portrayal of the last 5 years?
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