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Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments

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  • Catherine Fuss
  • Ladislav Wintr

Abstract

We evaluate the elasticity of firms' employment and real average labour compensation to totalfactor productivity (TFP) using firm-level data for Belgium over the period 1997-2005. Ourresults show that the short-run elasticity of average labour compensation and that of labour tofirm-level TFP are positive but relatively low. However, the long-run elasticity of labour ismuch higher than that of average labour compensation, consistent with real wage rigidity.Further, while the elasticity of average labour compensation to firm-level TFP is close to zero,the elasticity with respect to sector-level TFP is substantially higher. Lastly, our results indicatethat adjustment to sector-level TFP occurs through coordinated wage decisions embodied insector-level collective agreements.

Suggested Citation

  • Catherine Fuss & Ladislav Wintr, 2012. "Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(3), pages 241-268.
    • Handle: RePEc:bxr:bxrceb:2013/149108
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    2. Dobbelaere, Sabien & Fuss, Catherine & Vancauteren, Mark, 2023. "Does Offshoring Shape Labor Market Imperfections? A Comparative Analysis of Belgian and Dutch Firms," IZA Discussion Papers 15962, Institute of Labor Economics (IZA).
    3. Ung Leng Yean, 2016. "The Impact of Minimum Wage Policy on Small Medium Enterprises� Productivity in the Manufacturing Sector," GATR Journals jber120, Global Academy of Training and Research (GATR) Enterprise.

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    More about this item

    Keywords

    real labour compensation; employment; Total Factor Productivity; firm level panel data;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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