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Asymmetric wage adjustment and employment in European firms

Author

Listed:
  • Marotzke Petra

    (Deutsche Bundesbank, Frankfurt am Main, Germany)

  • Anderton Robert
  • Bairrao Ana

    (European Central Bank, Frankfurt am Main, Germany)

  • Berson Clémence

    (Banque de France and University Paris 1, Paris, France)

  • Tóth Peter

    (Národná Banka Slovenska, Bratislava, Slovakia)

Abstract

We explore the impact of wage adjustment on employment with a focus on the role of downward nominal wage rigidities. We use a harmonised survey dataset, which covers 25 European countries in the period 2010–2013. These data are particularly useful for this paper given the firm-level information on the change in economic conditions and collective pay agreements. Our findings confirm the presence of wage rigidities in Europe: first, collective pay agreements reduce the probability of downward wage adjustment; second, wage responses to demand developments are asymmetric with a weaker downward response. Estimation results show that a wage reduction significantly lowers the probability of a decrease in employment at the firm level when demand falls and thereby point to a negative effect of downward wage rigidities on employment at the firm level.

Suggested Citation

  • Marotzke Petra & Anderton Robert & Bairrao Ana & Berson Clémence & Tóth Peter, 2020. "Asymmetric wage adjustment and employment in European firms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-25, June.
    • Handle: RePEc:bpj:bejmac:v:20:y:2020:i:2:p:25:n:7
    DOI: 10.1515/bejm-2018-0254
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    Cited by:

    1. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    2. Lucifora, Claudio & Origo, Federica, 2025. "Rigid yet resilient: Firms’ margins of adjustment to demand shocks in regulated labour markets," Labour Economics, Elsevier, vol. 94(C).
    3. Marotzke Petra & Anderton Robert & Bairrao Ana & Berson Clémence & Tóth Peter, 2020. "Asymmetric wage adjustment and employment in European firms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-25, June.
    4. Jan Babecký & Clémence Berson & Ludmila Fadejeva & Ana Lamo & Petra Marotzke & Fernando Martins & Pawel Strzelecki, 2019. "Non-base wage components as a source of wage adaptability to shocks: evidence from European firms, 2010–2013," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-18, December.
    5. A. Moutaabbid, 2024. "Les determinants de la dynamique des salaires en France : approches macro et sectorielles par la courbe de Phillips," Documents de Travail de l'Insee - INSEE Working Papers 2024-20, Institut National de la Statistique et des Etudes Economiques.
    6. Fernando Martins & Jan Babecký, 2018. "Flexible wage components as a source of wage adaptability to shocks:evidence from European firms, 2010–2013," Working Papers w201808, Banco de Portugal, Economics and Research Department.
    7. Lehner, Lukas & Ramskogler, Paul & Riedl, Aleksandra, 2022. "Begging thy coworker – Labor market dualization and the slow-down of wage growth in Europe," INET Oxford Working Papers 2022-04, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    8. Berson Clémence, 2020. "Shocks and wage adjustments [Chocs économiques et ajustements salariaux]," Bulletin de la Banque de France, Banque de France, issue 231.
    9. Clémence Berson & Louis de Charsonville & Pavel Diev & Violaine Faubert & Laurent Ferrara & Sophie Guilloux-Nefussi & Yannick Kalantzis & Antoine Lalliard & Julien Matheron & Matteo Mogliani, 2018. "Does the Phillips curve still exist?," Rue de la Banque, Banque de France, issue 56, february.

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    Keywords

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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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