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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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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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References

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  1. 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.
  2. Babecky, Jan & Caju, Philip Du & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2009. "Downward nominal and real wage rigidity : survey evidence from European firms," Policy Research Working Paper Series 5159, The World Bank.
  3. Du Caju, Ph. & Gautier, E. & Momferatou, D. & Ward-Warmedinger, M., 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working papers 228, Banque de France.
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Citations

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Cited by:
  1. Bergin, Adele & Kelly, Elish & McGuinness, Seamus, 2012. "Explaining Changes in Earnings and Labour Costs During the Recession," Papers EC9, Economic and Social Research Institute (ESRI).
  2. 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.
  3. Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, 2010. "Incrementos y rigideces de los salarios en Colombia: Un estudio a partir de una encuesta," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO.
  4. Dias, Daniel A. & Marques, Carlos Robalo & Martins, Fernando, 2013. "Wage rigidity and employment adjustment at the firm level: Evidence from survey data," Labour Economics, Elsevier, vol. 23(C), pages 40-49.
  5. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2010. "Manufacturing employment and exchange rates in the Portuguese economy: the role of openness, technology and labour market rigidity," NIPE Working Papers 22/2010, NIPE - Universidade do Minho.
  6. Aurelijus Dabušinskas & Tairi Rõõm, 2011. "Survey evidence on wage and price setting in Estonia," Bank of Estonia Working Papers wp2011-06, Bank of Estonia, revised 27 May 2011.
  7. Virbickas, Ernestas, 2010. "Wage and price setting behaviour of Lithuanian firms," Working Paper Series 1198, European Central Bank.
  8. Frank R. Smets, 2010. "Commetary: modeling inflation after the crisis," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 221-234.
  9. Theodoros Mitrakos & Panos Tsakloglou, 2010. "Analyzing and comparing the impact of alternative concepts of resources in distributional studies: Greece, 2004/5," Working Papers 111, Bank of Greece.
  10. Dhyne, Emmanuel & Druant, Martine, 2010. "Wages, labor or prices: how do firms react to shocks?," Working Paper Series 1224, European Central Bank.
  11. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Labour cost-cutting strategies microeconomic evidence from survey data," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  12. Vasilis Droucopoulos & Panagiotis Chronis, 2010. "“Assessing market dominance”: a comment and an extension," Working Papers 109, Bank of Greece.
  13. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., . "Downward Wage Rigidities and Other Firms’ Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms," Borradores de Economia 612, Banco de la Republica de Colombia.

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