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Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments

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  • Catherine Fuss
  • Ladislav Wintr

Abstract

We evaluate the elasticity of firms' employment and real average labour compensation to totalfactor productivity (TFP) using firm-level data for Belgium over the period 1997-2005. Ourresults show that the short-run elasticity of average labour compensation and that of labour tofirm-level TFP are positive but relatively low. However, the long-run elasticity of labour ismuch higher than that of average labour compensation, consistent with real wage rigidity.Further, while the elasticity of average labour compensation to firm-level TFP is close to zero,the elasticity with respect to sector-level TFP is substantially higher. Lastly, our results indicatethat adjustment to sector-level TFP occurs through coordinated wage decisions embodied insector-level collective agreements.

Suggested Citation

  • Catherine Fuss & Ladislav Wintr, 2012. "Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(3), pages 241-268.
    • Handle: RePEc:bxr:bxrceb:2013/149108
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    2. Ung Leng Yean, 2016. "The Impact of Minimum Wage Policy on Small Medium Enterprises� Productivity in the Manufacturing Sector," GATR Journals jber120, Global Academy of Training and Research (GATR) Enterprise.

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    More about this item

    Keywords

    real labour compensation; employment; Total Factor Productivity; firm level panel data;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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