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The Margins of Labour Cost Adjustment: Survey Evidence from European Firms

Author

Listed:
  • Lawless, Martina

    (Central Bank and Financial Services Authority of Ireland)

  • Babecký, Jan

    (Czech National Bank)

  • Du Caju, Philip

    (National Bank of Belgium)

  • Kosma, Theodora

    (Bank of Greece)

  • Messina, Julián

    (World Bank)

  • Rõõm, Tairi

    (Bank of Estonia)

Abstract

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics.

Suggested Citation

  • Lawless, Martina & Babecký, Jan & Du Caju, Philip & Kosma, Theodora & Messina, Julián & Rõõm, Tairi, 2009. "The Margins of Labour Cost Adjustment: Survey Evidence from European Firms," Research Technical Papers 12/RT/09, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:12/rt/09
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    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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