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How do European firms adjust their labour costs when nominal wages are rigid?

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  • Babecký, Jan
  • Du Caju, Philip
  • Kosma, Theodora
  • Lawless, Martina
  • Messina, Julián
  • Rõõm, Tairi

Abstract

Although workers' nominal wages are seldom cut, firms have multiple options available if they require adjustments in their wage bills. We broaden the analysis of relative (in)flexibility in labour costs by investigating the use of other margins of labour cost adjustment at the firm level beyond base wages. Using data from a unique survey, we find that European firms make extensive use of other components of compensation to adjust the cost of labour. Interestingly, firms facing base wage rigidity are more likely to use alternative margins of labour cost adjustment; therefore there appears to be some degree of substitutability between wage flexibility and the flexibility of other cost components. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by unionisation and firm and worker characteristics.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 19 (2012)
Issue (Month): 5 ()
Pages: 792-801

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Handle: RePEc:eee:labeco:v:19:y:2012:i:5:p:792-801

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Labour costs; Wage rigidity; Firm survey; European Union;

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References

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  1. Kamil Galuščắk & Mary Keeney & Daphne Nicolitsas & Frank Smets & Pawel Strzelecki & Matija Vodopivec, 2011. "The determination of wages of newly hired employees: survey evidence on internal versus external factors," Working Papers 129, Bank of Greece.
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Citations

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Cited by:
  1. Juli?n Messina & Anna Sanz-de-Galdeano, 2014. "Wage Rigidity and Disinflation in Emerging Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 102-33, January.
  2. Jaromir Baxa & Michal Franta & Tomas Havranek & Roman Horvath & Miroslav Plasil & Marek Rusnak & Borek Vasicek, 2013. "Transmission of Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 11, number rb11/1 edited by Jan Babecky & Roman Horvath, August.
  3. Philip Du Caju & Theodora Kosma & Martina Lawless & Tairi Rõõm, 2013. "Why firms avoid cutting wages: survey evidence from European firms," Bank of Estonia Working Papers wp2013-2, Bank of Estonia, revised 24 May 2013.
  4. Bertola, Giuseppe & Dabušinskas, Aurelijus & Hoeberichts, Marco & Izquierdo, Mario & Kwapil, Claudia, 2010. "Price, wage and employment response to shocks: evidence from the WDN survey," Discussion Paper Series 1: Economic Studies 2010,02, Deutsche Bundesbank, Research Centre.
  5. Katerina Arnostova & Jozef Barunik & Jan Filacek & Michal Franta & David Havrlant & Roman Horvath & Filip Novotny & Marie Rakova & Lubos Ruzicka & Branislav Saxa & Katerina Smidkova & Peter Toth, 2012. "Macroeconomic Forecasting: Methods, Accuracy and Coordination," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 10, number rb10/1 edited by Jan Babecky, August.
  6. Kamil Galuscak & Adam Gersl & Marcela Gronychova & Petr Hlavac & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Jakub Seidler, 2014. "Stress-Testing Analyses of the Czech Financial System," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 12, number rb12/1 edited by Jan Babecky & Roman Horvath, August.
  7. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak, August.
  8. Jose Peydro Alcalde & Sona Benecka & Alexis Derviz & Adam Gersl & Tomas Holub & Roman Horvath & Petr Jakubik & Narcisa Liliana Kadlcakova & Dorota Kowalczyk & Ivana Kubicova & Steven Ongena & Jakub Ry, 2012. "Financial Stability and Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 10, number rb10/2 edited by Jan Babecky & Roman Horvath, August.
  9. Ahmed, Waqas & Choudhary, M. Ali & Khan, Sajawal & Naeem, Saima & Zoega, Gylfi, 2014. "Determinants of wage stickiness in a developing economy," Economic Modelling, Elsevier, vol. 38(C), pages 296-304.

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