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How do firms adjust in a crisis? Evidence from a survey among Luxembourg firms

  • Patrick Lünnemann

    ()

  • Thomas Y. Mathä

    ()

This paper uses survey evidence to analyse the response of Luxembourg firms to the economic and financial crisis in 2008-2009. Approximately three out of four firms reported that they were negatively affected by the crisis, mostly due to a fall in demand, but also due to financing difficulties and difficulties being paid for their products and services. The measures to adjust vary with the type and the size of the shock experienced. Firms aim at cutting costs in the first place, predominantly via a reduction of non-labour cost, but also by cutting temporary staff, bonuses and overtime compensation. While base wage freezes became much more common during the recent crisis, cuts in base wages remained very rare and few firms only reduced permanent staff in an attempt to reduce costs. The most important reasons for not cutting base wages relate to labour market regulation / existing wage agreements and the concern of reducing staff morale and effort. Finally, our results suggest that the assessment of adjustment measures and obstacles to wage cuts may depend on the economic environment and the actual situation of the firm.

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File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/70/BCLWP070.pdf
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Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 70.

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Length: 40 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:bcl:bclwop:bclwp070
Contact details of provider: Web page: http://www.bcl.lu/

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  1. Jan Babecky & Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Room, 2009. "Downward nominal and real wage rigidity : Survey evidence from European firms," Working Paper Research 182, National Bank of Belgium.
  2. Druant, Martine & Fabiani, Silvia & Kezdi, Gabor & Lamo, Ana & Martins, Fernando & Sabbatini, Roberto, 2009. "How are firms’ wages and prices linked: survey evidence in Europe," Working Paper Series 1084, European Central Bank.
  3. Agell, Jonas & Lundborg, Per, 1993. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Working Paper Series 380, Research Institute of Industrial Economics.
  4. Wolfgang Franz & Friedhelm Pfeiffer, 2006. "Reasons for Wage Rigidity in Germany," LABOUR, CEIS, vol. 20(2), pages 255-284, 06.
  5. Bertola, Giuseppe & Dabusinskas, Aurelijus & Hoeberichts, Marco & Izquierdo, Mario & Kwapil, Claudia & Montornes, Jérémi & Radowski, Daniel, 2010. "Price, Wage and Employment Response to Shocks: Evidence from the WDN Survey," CEPR Discussion Papers 7706, C.E.P.R. Discussion Papers.
  6. Richard Williams, 2006. "Generalized ordered logit/partial proportional odds models for ordinal dependent variables," Stata Journal, StataCorp LP, vol. 6(1), pages 58-82, March.
  7. Jonas Agell & Per Lundborg, . "Survey evidence on wage rigidity and unemployment: Sweden in the 1990s," EPRU Working Paper Series 99-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  8. Lünnemann, Patrick & Wintr, Ladislav, 2010. "Downward wage rigidity and automatic wage indexation: evidence from monthly micro wage data," Working Paper Series 1269, European Central Bank.
  9. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
  10. Emmanuel Dhyne & Luis J. Alvarez & Herve Le Bihan & Giovanni Veronese & Daniel Dias & Johannes Hoffmann & Nicole Jonker & Patrick Lunnemann & Fabio Rumler & Jouko Vilmunen, 2006. "Price Changes in the Euro Area and the United States: Some Facts from Individual Consumer Price Data," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 171-192, Spring.
  11. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November.
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