Was Ireland's Celtic Tiger Period Profit-led or Wage-led?

Abstract

This paper examines the macroeconomic performance of the Irish economy in the years leading up to the Celtic Tiger period and afterward, from 1980 to 2011. The goal of the paper is to determine how a severe recession in the 1980s could be followed so quickly by the unprecedented boom years of the Celtic Tiger, and followed again by the marked economic downturn since 2007. I build a Keynesian model of growth that integrates effective demand and productivity regimes to allow for the possibility that a redistribution of income can either spur or retard growth, depending on whether the regime is wage-led or profit-led. Using data for the Irish economy I test this model for wage-led or profit-led growth, finding plausible evidence that the Celtic Tiger years were, in fact, profit led.