Real wage convergence in an open labour market

Abstract

This paper looks at how the Irish experience of integration has affected the labour market, bringing about convergence in labour costs between Ireland and the UK. A model of this process is developed and estimated which takes account of the fact that productive capacity and output are mobile within the EU economy and that integration affects the supply of labour through the potential for migration and changing expectations. The results indicate that changes in tax rates in the U K can affect the Irish labour market.