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Results of the Bank’s survey of wage-setting in Belgian firms

Listed author(s):
  • M. Druant

    (National Bank of Belgium, Research Department)

  • Ph. Du Caju

    (National Bank of Belgium, Research Department)

  • Ph. Delhez

    (National Bank of Belgium, Research Department)

The analysis presented is the outcome of a survey conducted by the Bank and forming the Belgian component of an initiative launched by the Wage Dynamics Network (WDN), in order to accompany the empirical analysis based on individual employees’ wage data obtained, for instance, from administrative data banks. The survey contains questions on the wage-setting process, the existence of downward rigidity and the reasons for it, the reaction of firms to shocks, and the frequency and timing of wage and price adjustments. The survey reveals that almost all firms in Belgium are covered by a sector agreement, and just over a quarter apply an additional collective wage agreement at the firm level. Such firm-level collective agreements are more common in large firms. The results also show that just over half of firms apply a wage indexation mechanism with a threshold index, while just under half operate in an environment where indexation takes place at fixed intervals. The latter system is more common in large firms, so that the weighted results indicate that this mechanism applies to the majority of employees. The level of wages of new employees depends mainly on what is specified in collective agreements and on the wage level of comparable employees in the firm. However, the wages which the firm actually pays to its staff may deviate from the pay scales specified in the sectoral agreements. In a significant number of firms, especially for white-collar workers and skilled staff, actual wages paid exceed the sectoral pay scales. Such a wage cushion, forming a buffer between the actual wages and the collectively agreed lower limits, is more common in large firms. Overall, firms seldom respond to adverse shocks by cutting basic wages or using alternative ways of reducing labour costs per employee. Certainly in large firms, costs are reduced mainly via the employment channel, i.e. by reducing the number of primarily permanent staff, and to a lesser extent temporary workers. Reductions in non-wage costs are also important, while variable pay components are only cut in a small number of cases. Only a quarter of firms state that they adjust their prices more than once a year. Time-dependent price adjustments, in which the time of the adjustment does not depend on economic conditions (as opposed to state-dependent adjustments), occur in 22 p.c. of firms and are noticeably common in the business service sector. Combined with the low frequency of price adjustments, this indicates price rigidity in that sector. The frequency and timing of wage adjustments are closely linked to the indexation mechanism applied. Most firms adjust their wages no more than once a year. Time-dependent wage adjustments in a specific month apply to 61 p.c. of firms, and – like price adjustments – wage adjustments are concentrated in the month of January. Another peak occurs in July, and there is some concentration at the beginning of the second and fourth quarters, particularly in the case of wage adjustments.

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Article provided by National Bank of Belgium in its journal Economic Review.

Volume (Year): (2008)
Issue (Month): iii (September)
Pages: 49-73

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Handle: RePEc:nbb:ecrart:y:2008:m:september:i:iii:p:49-73
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  1. Agell, Jonas & Bennmarker, Helge, 2002. "Wage policy and endogenous wage rigidity: a representative view from the inside," Working Paper Series 2002:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
  3. Michael Rusinek & François Rycx, 2013. "Rent-Sharing under Different Bargaining Regimes: Evidence from Linked Employer–Employee Data," British Journal of Industrial Relations, London School of Economics, vol. 51(1), pages 28-58, March.
  4. Luc Aucremanne & Martine Druant, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ?," Working Paper Research 65, National Bank of Belgium.
  5. Aucremanne, Luc & Druant, Martine, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey?," Working Paper Series 448, European Central Bank.
  6. Alan S. Blinder & Don H. Choi, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 1003-1015.
  7. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
  8. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 759-789.
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