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Downward Wage Rigidity and Job Mobility

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  • Cornelissen, Thomas
  • Huebler, Oloaf

Abstract

Using data from the German Socio-Economic Panel (GSOEP) we study whether being individually affected by downward wage rigidity has an effect on layoffs, quits and intra-firm mobility. Within a structural empirical model we estimate the individual extent of wage rigidity. This is expressed by the wage sweep-up, which measures by how much individual wage growth increases through the effect of downward wage rigidity when compared to a counterfactual labour market with flexible wage setting. We find robust negative effects of wage sweep-up on quits and layoffs and some evidence for a positive association of wage sweep-up and promotion opportunities. This is consistent with a core-periphery view of the labour force, where a core work force is protected from layoffs and wage cuts and at the same time enjoys good promotion opportunities. On the other side a peripheral work force provides a buffer for adjustment and suffers from both flexible wages, more insecure jobs and less internal promotion opportunities.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-349.

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Length: 26 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:han:dpaper:dp-349

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Keywords: wage rigidity; wage sweep-up; quits; layoffs; promotions;

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References

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  1. Magda Kandil, 2005. "Countercyclical or procyclical real wages? A disaggregate explanation of aggregate asymmetry," Empirical Economics, Springer, vol. 30(3), pages 619-642, October.
  2. Ernst Fehr & Simon Gaechter, . "Fairness and Retaliation: The Economics of Reciprocitys," IEW - Working Papers 040, Institute for Empirical Research in Economics - University of Zurich.
  3. Jean-Pierre DANTHINE & André KURMANN, 2002. "Fair Wages in a New Keynesian Model of the Business Cycle," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 02.10, Université de Lausanne, Faculté des HEC, DEEP.
  4. Thomas Bauer & Holger Bonin & Lorenz Goette & Uwe Sunde, 2007. "Real and Nominal Wage Rigidities and the Rate of Inflation: Evidence from West German Micro Data," Economic Journal, Royal Economic Society, vol. 117(524), pages F508-F529, November.
  5. Assar Lindbeck & Dennis J. Snower, 2001. "Insiders versus Outsiders," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 165-188, Winter.
  6. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  7. Thanasis Stengos & Louis N. Christofides, 2002. "The symmetry of the wage-change distribution: Survey and contract data," Empirical Economics, Springer, vol. 27(4), pages 705-723.
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Citations

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Cited by:
  1. Stüber, Heiko & Beissinger, Thomas, 2010. "Does downward nominal wage rigidity dampen wage increases?," FZID Discussion Papers 22-2010, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  2. repec:iab:iabzaf:v:41:i:2/3:p:259-285 is not listed on IDEAS
  3. Bellmann, Lutz & Cornelißen, Thomas & Hübler, Olaf & Pahnke, André, 2008. "Betriebliche Reorganisation, Entlohnung und Beschäftigungsstabilität (Organisational change, wages and job stability)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 259-285.
  4. Gerlach, Knut & Hübler, Olaf, 2008. "Employment Adjustments on the Internal and External Labour Market: An Empirical Study with Personnel Records of a German Company," ZEW Discussion Papers 08-133, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Hirsch, Boris & Zwick, Thomas, 2013. "How selective are real wage cuts? A micro-analysis using linked employer-employee data," Discussion Papers 88, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  6. Puhani, Patrick A., 2005. "Transatlantic Differences in Labour Markets Changes in Wage and Non-Employment Structures in the 1980s and the 1990s," Darmstadt Discussion Papers in Economics 36793, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  7. Patrick A. Puhani, 2008. "Relative Demand and Supply of Skills and Wage Rigidity in the United States, Britain, and Western Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(5+6), pages 573-585, December.
  8. Radowski, Daniel & Bonin, Holger, 2008. "Sectoral differences in wage freezes and wage cuts: evidence from a new firm survey," Discussion Paper Series 1: Economic Studies 2008,24, Deutsche Bundesbank, Research Centre.

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