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

  • 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)

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.

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File URL: http://www.centralbank.ie/publications/documents/12RT09.pdf
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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 12/RT/09.

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Length: 35 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:cbi:wpaper:12/rt/09
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  1. Du Caju, Ph. & Gautier, E. & Momferatou, D. & Ward-Warmedinger, M., 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working papers 228, Banque de France.
  2. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward nominal and real wage rigidity: survey evidence from European firms," Working Papers 110, Bank of Greece.
  3. Goette, Lorenz & Sunde, Uwe & Bauer, Thomas K., 2007. "Wage rigidity: Measurement, causes and consequences," Munich Reprints in Economics 20448, University of Munich, Department of Economics.
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