Wage and Price Setting Practices of Cypriot Companies During the Period 2010-2013

In the context of its participation in the ESCB Wage Dynamics Network (WDN), the Central Bank of Cyprus (CBC) conducted a survey of the wage and price setting policies of domestic firms. Companies were asked to respond on the impact of various shocks related to the economic environment over the period 2010-2013, leading to the implementation of labour cost reduction strategies, including wage-setting changes. The major shocks that affected companies’ activities negatively during 2010-2013 related primarily to changes in the level and volatility of demand and the ability of customers to pay and meet their contractual obligations. The survey results point both to a reduction in demand as well as to a shift of the latter from smaller to larger firms. Consequently, micro and very small firms reduced prices and implemented cuts in labour costs to a greater extent than larger ones in order to remain competitive. Also, companies initially responded by cutting prices more than wages until 2011. As of 2012, given the challenging economic environment, firms increased the average wage cut, almost matching the cut in prices. The general conclusion that emerges is that the private sector was able to adapt well to the unprecedented decisions of the Eurogroup in March 2013.