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Asymmetric wage adjustment and employment in European firms

Author

Listed:
  • Marotzke Petra

    (Deutsche Bundesbank, Frankfurt am Main, Germany)

  • Anderton Robert
  • Bairrao Ana

    (European Central Bank, Frankfurt am Main, Germany)

  • Berson Clémence

    (Banque de France and University Paris 1, Paris, France)

  • Tóth Peter

    (Národná Banka Slovenska, Bratislava, Slovakia)

Abstract

We explore the impact of wage adjustment on employment with a focus on the role of downward nominal wage rigidities. We use a harmonised survey dataset, which covers 25 European countries in the period 2010–2013. These data are particularly useful for this paper given the firm-level information on the change in economic conditions and collective pay agreements. Our findings confirm the presence of wage rigidities in Europe: first, collective pay agreements reduce the probability of downward wage adjustment; second, wage responses to demand developments are asymmetric with a weaker downward response. Estimation results show that a wage reduction significantly lowers the probability of a decrease in employment at the firm level when demand falls and thereby point to a negative effect of downward wage rigidities on employment at the firm level.

Suggested Citation

  • Marotzke Petra & Anderton Robert & Bairrao Ana & Berson Clémence & Tóth Peter, 2020. "Asymmetric wage adjustment and employment in European firms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-25, June.
    • Handle: RePEc:bpj:bejmac:v:20:y:2020:i:2:p:25:n:7
    DOI: 10.1515/bejm-2018-0254
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    Cited by:

    1. Mario Izquierdo & Juan Francisco Jimeno & Theodora Kosma & Ana Lamo & Stephen Millard & Tairi Rõõm & Eliana Viviano, 2017. "Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey," Occasional Papers 1704, Banco de España.
    2. repec:bfr:quarte:2016:45:03 is not listed on IDEAS
    3. Lehner, Lukas & Ramskogler, Paul & Riedl, Aleksandra, 2022. "Begging thy coworker – Labor market dualization and the slow-down of wage growth in Europe," INET Oxford Working Papers 2022-04, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    4. repec:bfr:quarte:2016:45:06 is not listed on IDEAS
    5. Marotzke Petra & Anderton Robert & Bairrao Ana & Berson Clémence & Tóth Peter, 2020. "Asymmetric wage adjustment and employment in European firms," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-25, June.
    6. repec:bfr:quarte:2016:45:01 is not listed on IDEAS
    7. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    8. L. Ferrara & G. Gauthier & F. Pappadà, 2017. "Fiscal consolidation episodes in OECD countries: the role of tax compliance and fiscal space," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 15-22, Spring.
    9. C. Devillers & K. Parra Ramirez, 2017. "French Banks confirm their fourth rank in international banking," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 31-44, Spring.
    10. Jan Babecký & Clémence Berson & Ludmila Fadejeva & Ana Lamo & Petra Marotzke & Fernando Martins & Pawel Strzelecki, 2019. "Non-base wage components as a source of wage adaptability to shocks: evidence from European firms, 2010–2013," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-18, December.
    11. C. Berson & C. Malgouyres & S. Ray, 2017. "The labour market: institutions and reforms Summary of the third Labour Market Conference held in Aix-en-Provence on 1 and 2 December 2016 by the Aix-Marseille School of Economics and the Banque de Fr," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 45-52, Spring.
    12. Berson Clémence, 2020. "Shocks and wage adjustments [Chocs économiques et ajustements salariaux]," Bulletin de la Banque de France, Banque de France, issue 231.
    13. repec:bfr:quarte:2016:45:05 is not listed on IDEAS
    14. Clémence Berson & Louis de Charsonville & Pavel Diev & Violaine Faubert & Laurent Ferrara & Sophie Guilloux-Nefussi & Yannick Kalantzis & Antoine Lalliard & Julien Matheron & Matteo Mogliani, 2018. "Does the Phillips curve still exist?," Rue de la Banque, Banque de France, issue 56, february.
    15. A. Lalliard, 2017. "An alternative method for capturing tensions in the residential property market," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 5-13, Spring.
    16. B. Bureau & M. Bürker & T. Libert, 2017. "The financial situation of companies in France in 2015," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 53-69, Spring.
    17. W. Arrata & A. Gautier & P. Lopez & I. Rahmouni-Rousseau & M. Girotti & B. Mojon & U. Szczerbowicz & M. Vari & T. Foucault, 2017. "12th Annual Central Bank Workshop on the Microstructure of Financial Markets 29-30 September 2016, Banque de France (Non-technical summary)," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 45, pages 23-30, Spring.
    18. Fernando Martins & Jan Babecký, 2018. "Flexible wage components as a source of wage adaptability to shocks:evidence from European firms, 2010–2013," Working Papers w201808, Banco de Portugal, Economics and Research Department.
    19. repec:bfr:quarte:2016:45:04 is not listed on IDEAS
    20. repec:bfr:quarte:2016:45:02 is not listed on IDEAS

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    More about this item

    Keywords

    employment; demand shocks; wage rigidity;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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