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Uncertainty, firm heterogeneity and labour adjustments. Evidence from European countries


  • Marta Martínez-Matute

    (Universidad Autónoma de Madrid)

  • Alberto Urtasun

    (Banco de España)


Firms are significantly affected by uncertainty about economic activity. Recent literature has shown that uncertainty is a factor of increasing importance in a globalized world, especially after its sharp increase during the last crisis. However, uncertainty did not impact all the firms in the same way. In this paper, we analyze if uncertainty may have different effects depending on firms’ characteristics. We would also like to understand how firms react to uncertainty diversely. Using data from the 3rd wave of the Wage Dynamic Network Survey for 25 European countries, we first construct a set of uncertainty indicators exploiting firms environment. We combine variability from country, sector and size at the firm level in order to disaggregate microeconomic uncertainty, which offers richer information than the traditional macroeconomic indicators. Secondly, we estimate the effect of uncertainty on labour adjustments. Results reveal that firms reduce hiring and increase the adjustment of labour demand with more frequency when uncertainty is higher. An increase of 1% in our uncertainty indicator increases the probability of having frozen hiring in between 21% to 35% during the period 2010-2013. Furthermore, other labour strategies have been also taken by firms, such as altering labour workforce: the more the uncertainty is, the more probability of recurring to individual layoffs. Significant effects have been found in firms subject to credit constraints, and country heterogeneity has also been studied: when EPL is stricter, labour response to uncertainty is also more significant.

Suggested Citation

  • Marta Martínez-Matute & Alberto Urtasun, 2018. "Uncertainty, firm heterogeneity and labour adjustments. Evidence from European countries," Working Papers 1821, Banco de España.
  • Handle: RePEc:bde:wpaper:1821

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    References listed on IDEAS

    1. Dibiasi, Andreas & Abberger, Klaus & Siegenthaler, Michael & Sturm, Jan-Egbert, 2018. "The effects of policy uncertainty on investment: Evidence from the unexpected acceptance of a far-reaching referendum in Switzerland," European Economic Review, Elsevier, vol. 104(C), pages 38-67.
    2. Mecikovsky, Ariel Matias & Meier, Matthias, 2014. "Do plants freeze upon uncertainty shocks?," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100541, Verein für Socialpolitik / German Economic Association.
    3. Choi, Sangyup & Furceri, Davide & Huang, Yi & Loungani, Prakash, 2018. "Aggregate uncertainty and sectoral productivity growth: The role of credit constraints," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 314-330.
    4. Bonciani, Dario & Roye, Björn van, 2016. "Uncertainty shocks, banking frictions and economic activity," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 200-219.
    5. María Gil & Javier J. Pérez & Alberto Urtasun, 2017. "Macroeconomic uncertainty: measurement and impact on the Spanish economy," Economic Bulletin, Banco de España, issue MAR, pages 1-13.
    6. James Costain & Juan F. Jimeno & Carlos Thomas, 2010. "Employment fluctuations in a dual labour market," Economic Bulletin, Banco de España, issue APR, pages 1-8, April.
    7. Bachmann, Rüdiger & Bayer, Christian, 2013. "‘Wait-and-See’ business cycles?," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 704-719.
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    More about this item


    uncertainty; firm heterogeneity; labour adjustment; freeze hiring; layoffs;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand


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