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The margins of labour cost adjustment: survey evidence from european firms

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Author Info

  • Jan Babecký

    (Czech National Bank)

  • Philip Du Caju

    (National Bank of Belgium)

  • Theodora Kosma

    () (Bank of Greece)

  • Martina Lawless

    (Central Bank and Financial Services Authority of Ireland)

  • Julián Messina

    (World Bank and University of Girona)

  • Tairi Rõõm

    (Bank of Estonia)

Abstract

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. 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 firm and worker characteristics.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2010108.pdf
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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 108.

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Length: 42
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:bog:wpaper:108

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Web page: http://www.bankofgreece.gr
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Keywords: labour costs; wage rigidity; firm survey; European Union;

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  1. Jan Babecky & Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Room, 2009. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Working Papers 2009/4, Czech National Bank, Research Department.
  2. Lorenz Goette & Uwe Sunde & Thomas Bauer, 2007. "Wage Rigidity: Measurement, Causes and Consequences," Economic Journal, Royal Economic Society, vol. 117(524), pages F499-F507, November.
  3. Philip Ducaju & Erwan Gautier & Daphné Momferatou & Mélanie Ward-Warmedinge, 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working Paper Research 154, National Bank of Belgium.
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