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Rigid labour compensation and flexible employment ? Firm-level evidence with regard to productivity for Belgium

  • Catherine Fuss

    ()

    (National Bank of Belgium, Research Department)

  • Ladislav Wintr

    ()

    (Central Bank of Luxembourg, Economics and Research Department)

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year

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Paper provided by National Bank of Belgium in its series Working Paper Research with number 159.

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Length: 45 pages
Date of creation: Mar 2009
Handle: RePEc:nbb:reswpp:200903-11
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