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Flexible Wages or Flexible Workers?

Author

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  • Anja Deelen

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

This paper investigates how fi rms adjust wages and employment in periods of adverse economic circumstances, using extensive, administrative linked employer/employee panel data for the Netherlands. Changes in the contractual wage bills of fi rms are decomposed into wages and job flows, distinguishing stayers and workers entering and exiting the fi rm. This paper investigates how firms adjust wages and employment in periods of adverse economic circumstances, using extensive, administrative linked employer/employee panel data for the Netherlands. Changes in the contractual wage bills of firms are decomposed into wages and job flows, distinguishing stayers and workers entering and exiting the firm. Employment reduction is found to be the major channel for wage-bill contraction by firms, indicating downward wage rigidity. A negative relationship is established between fi rms' degree of downward wage rigidity and their employment growth, suggesting that job losses in response to adverse shocks would be signi cantly lower if wages were more downwardly flexible.

Suggested Citation

  • Anja Deelen, 2019. "Flexible Wages or Flexible Workers?," CPB Discussion Paper 405, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:405
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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