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What is the most flexible component of wage bill adjustment? Evidence from Belgium

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  • Fuss, Catherine

Abstract

This paper decomposes wage bill changes at the firm level into components due to wage changes, and components due to flows of employment. It relies on an administrative matched employer-employee dataset of individual earnings merged with firms' annual accounts for Belgium over the period 1997-2001. The results are in line with what one would expect in a downward wage rigidity environment. On average, wage bill contractions result essentially from employment cuts in spite of wage increases. Wage growth of job stayers is moderated but positive; and wages of entrants compared with those of incumbents are no lower. The labour force cuts are achieved through both reduced entries and increased exits, due to more layoffs, especially in smaller firms, and wider use of early retirement, especially in manufacturing. In addition, the paper points out the role of overtime hours, temporary unemployment and interim workers in adapting hours worked to economic circumstances.

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  • Fuss, Catherine, 2009. "What is the most flexible component of wage bill adjustment? Evidence from Belgium," Labour Economics, Elsevier, vol. 16(3), pages 320-329, June.
    • Handle: RePEc:eee:labeco:v:16:y:2009:i:3:p:320-329
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    2. Bart COCKX & Muriel DEJEMEPPE & Andrey LAUNOV & Bruno VAN DER LINDEN, 2011. "Monitoring, Sanctions and Front-Loading of Job Search in a Non-Stationary Model," LIDAM Discussion Papers IRES 2011042, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    3. Rob Euwals & Anja Deelen, 2014. "Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands," CPB Discussion Paper 282.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Stephan Kampelmann & François Rycx, 2011. "Does institutional diversity account for pay rules in Germany and Belgium?," Working Papers CEB 11-042, ULB -- Universite Libre de Bruxelles.
    5. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Anja Deelen, 2019. "Flexible Wages or Flexible Workers?," CPB Discussion Paper 405.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Catherine Fuss & Ladislav Wintr, 2012. "Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(3), pages 241-268.
    8. Michele Battisti & Giovanna Vallanti, 2013. "Flexible Wage Contracts, Temporary Jobs, and Firm Performance: Evidence From Italian Firms," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(3), pages 737-764, July.
    9. Cockx, Bart & Ghirelli, Corinna, 2016. "Scars of recessions in a rigid labor market," Labour Economics, Elsevier, vol. 41(C), pages 162-176.
    10. Emmanuel Dhyne & Martine Druant, 2010. "Wages, labor or prices : How do firms react to shocks ?," Working Paper Research 193, National Bank of Belgium.
    11. Rob Euwals & Anja Deelen, 2014. "Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands," CPB Discussion Paper 282, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Nicola Gagliardi & Elena Grinza & François Rycx, 2021. "Can You Teach an Old Dog New Tricks? New Evidence on the Impact of Tenure on Productivity," Working Papers CEB 21-007, ULB -- Universite Libre de Bruxelles.
    13. Heinz, Matthias & Jeworrek, Sabrina & Mertins, Vanessa & Schumacher, Heiner & Sutter, Matthias, 2017. "Measuring Indirect Effects of Unfair Employer Behavior on Worker Productivity – A Field Experiment," CEPR Discussion Papers 12429, C.E.P.R. Discussion Papers.
    14. G. de Walque & M. Druant & Ph. Du Caju & C. Fuss, 2010. "Lessons of the Wage Dynamics Network," Economic Review, National Bank of Belgium, issue i, pages 55-75, June.
    15. Kao, Chun-Lin & Chen, Ming-Yuan, 2020. "Employee downsizing, financial constraints, and production efficiency of firms," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 59-73.
    16. Anja Deelen, 2021. "Flexible Wages or Flexible Workers? A Decomposition of Wage Bill Adjustment by Dutch Firms, 2006–2013," De Economist, Springer, vol. 169(2), pages 179-209, May.
    17. Anja Deelen, 2019. "Flexible Wages or Flexible Workers?," CPB Discussion Paper 405, CPB Netherlands Bureau for Economic Policy Analysis.
    18. Anja Deelen & Wouter Verbeek, 2015. "Measuring Downward Nominal and Real Wage Rigidity - Why Methods Matter," CPB Discussion Paper 315.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Heinz, Matthias & Drzensky, Frank, 2013. "The Hidden Costs of Downsizing," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79764, Verein für Socialpolitik / German Economic Association.
    20. Deelen, Anja & Euwals, Rob, 2014. "Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands," IZA Discussion Papers 8467, Institute of Labor Economics (IZA).
    21. Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.

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