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Labor Cost Adjustment: Evidence From a Survey of Slovak Firms

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  • Marianna Cervena

    () (National Bank of Slovakia, Research Department)

Abstract

Building on a unique survey of how Slovak firms adjust wages and prices, this paper studies the reduction of labour costs in two forms: base wage cuts and alternative margins for labour cost reduction. Anecdotal evidence suggests that wage-cutting by firms occurs more frequently in Slovakia than in any other country and that the use of alternative margins for labour cost reduction is also quite prevalent in Slovakia. Regression results support the strong relationship between the use of alternative margins and wage rigidities. I find that the use of any alternative margin is on average 30% more likely in firms facing nominal wage rigidity that in firms with flexible wages.

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Bibliographic Info

Paper provided by Research Department, National Bank of Slovakia in its series Working and Discussion Papers with number WP 4/2012.

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Length: 28 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:svk:wpaper:1019

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Keywords: nominal and real wage rigidity; alternative margins for labour cost cutting; survey evidence;

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  1. Pavel Gertler, 2010. "The wage curve: A panel data view of labour market segments," Working and Discussion Papers WP 3/2010, Research Department, National Bank of Slovakia.
  2. Keeney, Mary J. & Lawless, Martina, 2010. "Wage Setting and Wage Flexibility in Ireland:Results from a Firm-level Survey," Research Technical Papers 1/RT/10, Central Bank of Ireland.
  3. Ian Babetskii, 2007. "Aggregate Wage Flexibility in Selected New EU Member States," CESifo Working Paper Series 1916, CESifo Group Munich.
  4. Pavel Gertler & Matus Senaj, 2008. "Downward Wage Rigidities in Slovakia," Working and Discussion Papers WP 7/2008, Research Department, National Bank of Slovakia.
  5. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  6. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
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