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Downward Wage Rigidity and Labour Mobility

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Author Info
Cornelißen, Thomas (University of Hannover)
Hübler, Olaf () (University of Hannover and IZA Bonn)

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Abstract

Using data from the German Socio-Economic Panel (GSOEP) effects of being individually affected by downward wage rigidity on layoffs, quits and intra-firm mobility are investigated. We measure the individual extent of wage rigidity within a structural empirical model that allows us to estimate the notional wage growth which is about 1.4 % on average over the whole period. Wage growth is swept up by 3.3 % through wage rigidity and 62 % of the work force are in the real rigid regime. We find negative effects of wage sweep-up on quits, layoffs and promotions. This is consistent with a core-periphery view of the labour force, where a core work force is at the same time protected from layoffs and from wage cuts, whereas a peripheral work force provides a buffer for adjustment and suffers from both flexible wages and more insecure jobs. Reducing promotions for high wage sweep-up workers seems to be strategy of employers to circumvent wage rigidity. This suggests that it is not a pay policy chosen by the employer, but that it is imposed upon the employer through bargaining power. However, decreased promotion opportunities do not seem to fully outweigh the benefit of generous wage growth.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1523.

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Length: 68 pages
Date of creation: Mar 2005
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Handle: RePEc:iza:izadps:dp1523

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Related research
Keywords: wage rigidity; wage sweep up; job mobility; quits; layoffs; promotions;

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J63 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Turnover; Vacancies; Layoffs

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gernandt, Johannes & Pfeiffer, Friedhelm, 2005. "Einstiegslöhne bei unvollkommenen Arbeitsmärkten," ZEW Discussion Papers 05-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  2. Steinar Holden & Fredrik Wulfsberg, 2007. "How strong is the case for downward real wage rigidity?," Working Papers 07-6, Federal Reserve Bank of Boston. [Downloadable!]
  3. Patrick Puhani, 2005. "Transatlantic Differences in Labour Markets Changes in Wage and Non-Employment Structures in the 1980s and the 1990s," Darmstadt Discussion Papers in Economics 156, Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology). [Downloadable!]
    Other versions:
  4. Cornelißen, Thomas, 2006. "Job characteristics as determinants of job satisfaction and labour mobility," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-334, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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