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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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References

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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 Paper Research 182, National Bank of Belgium.
  2. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
  3. 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.
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Cited by:
  1. 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.
  2. Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2014. "Why firms avoid cutting wages : survey evidence from European firms," Policy Research Working Paper Series 6976, The World 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., . "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.
  5. Vasilis Droucopoulos & Panagiotis Chronis, 2010. "“Assessing market dominance”: a comment and an extension," Working Papers 109, Bank of Greece.
  6. 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.
  7. 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.
  8. Ernestas Virbickas, 2010. "Wage and Price Setting Behaviour of Lithuanian Firms," Bank of Lithuania Working Paper Series 7, Bank of Lithuania.
  9. Dhyne, Emmanuel & Druant, Martine, 2010. "Wages, labor or prices: how do firms react to shocks?," Working Paper Series 1224, European Central Bank.
  10. 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.
  11. 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.
  12. Alexandre, Fernando & Bação, Pedro & Cerejeira, João & Portela, Miguel, 2010. "Manufacturing Employment and Exchange Rates in the Portuguese Economy: The Role of Openness, Technology and Labour Market Rigidity," IZA Discussion Papers 5251, Institute for the Study of Labor (IZA).
  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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