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Downward Wage Rigidities and Other Firms’ Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms

  • Ana María Iregui B.

    ()

  • Ligia Alba Melo B.

    ()

  • María Teresa Ramírez G.

    ()

This paper uses a wage setting survey of 1,305 Colombian firms to explore the nature and sources of wage rigidities. This is the first study of a non-European emerging economy that uses evidence from a survey of firms to analyse this topic. The survey was carried out during the first half of 2009, when the Colombian economy was showing signs of a slowdown in economic activity and increasing unemployment. The sample is fully representative of the population under study. The results provide evidence of nominal and real downward wage rigidities in the country. The most important factor in not reducing base wages during an economic slowdown is to avoid the loss of more experienced and productive workers, which is related to the efficiency wage theory in its adverse selection version. In addition, ordered logit regressions were used to determine what factors are related to wage rigidities. The findings indicate that, in general, permanent contracts, workforce composition, labour intensity and the presence of collective agreements play an important role in explaining wage rigidities in the country.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 612.

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Handle: RePEc:bdr:borrec:612
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  1. Babecky, Jan & Caju, Philip Du & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2009. "Downward nominal and real wage rigidity : survey evidence from European firms," Policy Research Working Paper Series 5159, The World Bank.
  2. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., . "Are wages rigid in Colombia?: Empirical evidence based on a sample of wages at the firm level," Borradores de Economia 571i, Banco de la Republica de Colombia.
  3. Ana María Iregui & Ligia Alba Melo & María Teresa Ramírez, . "Formación e incrementos de salarios en Colombia: Un estudio microeconómico a partir de una encuesta a nivel de firma," Borradores de Economia 582, Banco de la Republica de Colombia.
  4. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2009. "The margins of labour cost adjustment: survey evidence from european firms," Working Papers 108, Bank of Greece.
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