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The Margins of Labour Cost Adjustment: Survey Evidence from European Firms

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

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. JEL Classification: J30, C81, P5

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1106.

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Date of creation: Nov 2009
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Handle: RePEc:ecb:ecbwps:20091106

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Keywords: European Union; firm survey; labour costs; wage rigidity;

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  1. 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.
  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. 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.
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Cited by:
  1. 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," GEMF Working Papers 2010-23, GEMF - Faculdade de Economia, Universidade de Coimbra.
  2. Virbickas, Ernestas, 2010. "Wage and price setting behaviour of Lithuanian firms," Working Paper Series 1198, European Central Bank.
  3. 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).
  4. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., 2010. "Downward Wage Rigidities and Other Firms´ Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms," BORRADORES DE ECONOMIA 007195, BANCO DE LA REPÚBLICA.
  5. 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.
  6. Dhyne, Emmanuel & Druant, Martine, 2010. "Wages, labor or prices: how do firms react to shocks?," Working Paper Series 1224, European Central Bank.
  7. 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.
  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. 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.
  10. Daniel Dias & Carlos Robalo Marques & Fernando Martins, 2012. "Wage rigidity and employment adjustment at the firm level: evidence from survey data," Working Papers w201212, Banco de Portugal, Economics and Research Department.
  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. 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.

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