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Flexible wage components as a source of wage adaptability to shocks:evidence from European firms, 2010–2013

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Abstract

This paper provides evidence on the role of flexible wage components as a channel for firms to adjust costs in case of the adverse shocks. It uses data from a firm-level survey for 25 European countries that covers the period 2010–2013. We find that firms subject to nominal wage rigidities, which prevent them from adjusting base wages, are more likely to cut flexible wage components in order to adjust labour costs when needed. Thus firms use flexible wage components as a buffer to overcome base wage rigidity. More generally, when base wages are able to adjust to negative shocks, the flexible wage components also react and their reaction is stronger than that of base wages.

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  • 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.
    • Handle: RePEc:ptu:wpaper:w201808
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    Cited by:

    1. Jan Babecky & Kamil Galuscak & Diana Zigraiova, 2017. "Wage Dynamics and Financial Performance: Evidence from Czech Firms," Working Papers 2017/14, Czech National Bank.

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    More about this item

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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