Non-wage costs, employment and hours of work in Irish manufacturing industry

Abstract

This paper presents a recursive model of the short-run demand for workers and hours in Irish industry. On the assumption that employers minimise costs, the optimal employment/hours mix is shown to be a function of the ratio of non-wage to wage costs. A series of non-wage costs, comprising employers' social insurance, redundancy and pay-related contributions, is constructed and the model estimated with encouraging results. The steady rise in the importance of non-wage costs appears to have exerted a depressing effect on the level of employment. The resulting implications for a job creation strategy are then explored.