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The margins of labour cost adjustment : Survey evidence from European firms

  • Jan Babecky

    ()

    (Czech National Bank)

  • Philip Du Caju

    ()

    (National Bank of Belgium, Research Department)

  • Theodora Kosma

    ()

    (Bank of Greece)

  • Martina Lawless

    ()

    (Central Bank and Financial Services Authority of Ireland)

  • Julian Messina

    ()

    (World Bank)

  • Tairi Room

    ()

    (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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Paper provided by National Bank of Belgium in its series Working Paper Research with number 183.

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Length: 42 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:nbb:reswpp:200911-24
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  1. Jan Babecky & Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Rõõm, 2009. "Downward nominal and real wage rigidity :survey evidence from European firms," Bank of Estonia Working Papers 2009-3, Bank of Estonia, revised 06 Dec 2009.
  2. Lorenz Goette & Uwe Sunde & Thomas Bauer, 2007. "Wage Rigidity: Measurement, Causes and Consequences," Economic Journal, Royal Economic Society, vol. 117(524), pages F499-F507, November.
  3. 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.
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