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Downward Wage Rigidity and Labour Mobility

Author

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  • Cornelissen, Thomas

    (University of Essex)

  • Hübler, Olaf

    (Leibniz University of Hannover)

Abstract

Using data from the German Socio-Economic Panel (GSOEP) effects of being individually affected by downward wage rigidity on layoffs, quits and intra-firm mobility are investigated. We measure the individual extent of wage rigidity within a structural empirical model that allows us to estimate the notional wage growth which is about 1.4 % on average over the whole period. Wage growth is swept up by 3.3 % through wage rigidity and 62 % of the work force are in the real rigid regime. We find negative effects of wage sweep-up on quits, layoffs and promotions. This is consistent with a core-periphery view of the labour force, where a core work force is at the same time protected from layoffs and from wage cuts, whereas a peripheral work force provides a buffer for adjustment and suffers from both flexible wages and more insecure jobs. Reducing promotions for high wage sweep-up workers seems to be strategy of employers to circumvent wage rigidity. This suggests that it is not a pay policy chosen by the employer, but that it is imposed upon the employer through bargaining power. However, decreased promotion opportunities do not seem to fully outweigh the benefit of generous wage growth.

Suggested Citation

  • Cornelissen, Thomas & Hübler, Olaf, 2005. "Downward Wage Rigidity and Labour Mobility," IZA Discussion Papers 1523, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1523
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    2. Patrick A. Puhani, 2008. "Transatlantic Differences in Labour Markets: Changes in Wage and Non‐Employment Structures in the 1980s and the 1990s," German Economic Review, Verein für Socialpolitik, vol. 9(3), pages 312-338, August.
    3. Johannes Gernandt & Friedhelm Pfeiffer, 2006. "Einstiegslöhne bei unvollkommenen Arbeitsmärkten," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(2), pages 147-172, May.
    4. Steinar Holden & Fredrik Wulfsberg, 2007. "How strong is the case for downward real wage rigidity?," Working Papers 07-6, Federal Reserve Bank of Boston.
    5. Cornelißen, Thomas, 2006. "Job characteristics as determinants of job satisfaction and labour mobility," Hannover Economic Papers (HEP) dp-334, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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    More about this item

    Keywords

    layoffs; wage rigidity; wage sweep up; job mobility; quits; promotions;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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