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Wage and Price Setting Behaviour of Lithuanian Firms

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  • Ernestas Virbickas

    (Bank of Lithuania)

Abstract

This paper investigates the wage and price setting behaviour of Lithuanian firms on the basis of an ad hoc survey "On Price and Wage Setting" undertaken by the Bank of Lithuania. The paper provides survey evidence on the frequency of wage and price changes. The frequency of wage changes turns out to be higher in firms that apply collective pay agreements, while the frequency of price changes appears to be positively affected by the market competition. Labour cost share is not found to be significant in making the impact on the frequency of price changes. This paper also investigates the role of certain technological, institutional and other factors in shaping firms' responses to a negative demand shock, an intermediate input cost shock and a wage shock. A higher labour cost share is found to increase the likelihood of a price increase following a wage shock. Flexible wage components mitigate firms' responses to a slowdown in demand and an intermediate input cost increase. The behaviour of firms following the investigated shocks is also affected by the level of competition. The role of collective pay agreements appears to be rather limited in shaping responses of firms to the shocks.

Suggested Citation

  • Ernestas Virbickas, 2010. "Wage and Price Setting Behaviour of Lithuanian Firms," Bank of Lithuania Working Paper Series 7, Bank of Lithuania.
  • Handle: RePEc:lie:wpaper:7
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    References listed on IDEAS

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    Cited by:

    1. Ana Iregui & Ligia Melo & María Ramírez, 2012. "Wage Adjustment Practices and the Link between Price and Wages: Survey Evidence from Colombian Firms," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 76, pages 17-53.
    2. Ernestas Virbickas, 2012. "New Keynesian Phillips Curve in Lithuania," Bank of Lithuania Working Paper Series 14, Bank of Lithuania.
    3. SungJu Song & Myung‐Soo Yie & Chang‐Gui Park, 2020. "Price‐Setting Behavior of Korean Firms†," Asian Economic Journal, East Asian Economic Association, vol. 34(1), pages 97-120, March.
    4. Marina Kunovac, 2015. "Determinants of Labour Cost Adjustment Strategies during the Crisis – Survey Evidence from Croatia," Working Papers 42, The Croatian National Bank, Croatia.
    5. Julius Stakenas, 2015. "Forecasting Lithuanian Inflation," Bank of Lithuania Working Paper Series 17, Bank of Lithuania.

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    More about this item

    Keywords

    wage setting; price setting; labour costs;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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