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Determinants of Labour Cost Adjustment Strategies during the Crisis – Survey Evidence from Croatia

Author

Listed:
  • Marina Kunovac

    (The Croatian National Bank, Croatia)

Abstract

This paper analyses labour cost adjustment strategies implemented during the 2010-2013 period by Croatian firms as a response to the prolonged deterioration in economic conditions, and their main determinants. The analysis is based on an ad-hoc company survey that was developed within the Wage Dynamic Network of the European Central Bank and conducted on a sample of Croatian firms in mid-2014. The main results are as follows: (1) most firms in Croatia experienced negative economic shocks, but the vast majority of firms are still reluctant to adjust base wages and prefer to reduce labour costs by reducing labour input; (2) nevertheless, incidence of wage cuts more than doubled over the years, pointing to a dissipation of nominal wage rigidity in Croatia; (3) the probability of adjusting labour costs is strongly influenced by negative changes in the economic environment a firm has been exposed to; (4) firm level and worker characteristics also turned out to be significant in the determination of the probability of labour cost adjustment and (5) restrictions created by collective bargaining and indexation are found to be important in reducing the likelihood of wage adjustments.

Suggested Citation

  • Marina Kunovac, 2015. "Determinants of Labour Cost Adjustment Strategies during the Crisis – Survey Evidence from Croatia," Working Papers 42, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:wpaper:42
    as

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    File URL: http://www.hnb.hr/repec/hnb/wpaper/pdf/w-042.pdf
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    References listed on IDEAS

    as
    1. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    2. Goran Vuksic, 2014. "Employment and employment conditions in the current economic crisis in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 38(2), pages 103-138.
    3. Ernestas Virbickas, 2010. "Wage and Price Setting Behaviour of Lithuanian Firms," Bank of Lithuania Working Paper Series 7, Bank of Lithuania.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    survey data; negative economic shocks; labour costs; wage adjustments;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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