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The margins of labour cost adjustment : Survey evidence from European firms

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Author Info

  • Jan Babecky

    ()
    (Czech National Bank)

  • Philip Du Caju

    ()
    (National Bank of Belgium, Research Department)

  • Theodora Kosma

    ()
    (Bank of Greece)

  • Martina Lawless

    ()
    (Central Bank and Financial Services Authority of Ireland)

  • Julian Messina

    ()
    (World Bank)

  • Tairi Room

    ()
    (Bank of Estonia)

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

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File URL: http://www.nbb.be/doc/oc/repec/reswpp/wp183En.pdf
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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 183.

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Length: 42 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:nbb:reswpp:200911-24

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

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References

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  1. Du Caju, Philip & Gautier, Erwan & Momferatou, Daphne & Ward-Warmedinger, Melanie, 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working Paper Series 0974, European Central Bank.
  2. Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julián & Rõõm, Tairi, 2009. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Working Paper Series 1105, European Central Bank.
  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. G. de Walque & M. Druant & Ph. Du Caju & C. Fuss, 2010. "Lessons of the Wage Dynamics Network," Economic Review, National Bank of Belgium, issue I, pages 55-75, June.
  2. Emmanuel Dhyne & Martine Druant, 2010. "Wages, labor or prices : How do firms react to shocks ?," Working Paper Research 193, National Bank of Belgium.
  3. 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.
  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. Du Caju, Philip & Kosma, Theodora & Lawless, Martina & Messina, Julián & Rõõm, Tairi, 2013. "Why Firms Avoid Cutting Wages: Survey Evidence from European Firms," Research Technical Papers 03/RT/13, Central Bank of Ireland.
  6. 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.
  7. 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.
  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. Ernestas Virbickas, 2010. "Wage and Price Setting Behaviour of Lithuanian Firms," Bank of Lithuania Working Paper Series 7, Bank of Lithuania.
  10. 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).
  11. 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.
  12. Emmanuel Dhyne & Catherine Fuss & Claude Mathieu, 2010. "Labour demand adjustment : Does foreign ownership matter ?," Working Paper Research 207, National Bank of Belgium.
  13. Vasilis Droucopoulos & Panagiotis Chronis, 2010. "“Assessing market dominance”: a comment and an extension," Working Papers 109, Bank of Greece.
  14. 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).
  15. 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.

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