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The margins of labor cost adjustment : survey evidence from European firms

Author

Listed:
  • Babecky, Jan
  • Caju, Philip Du
  • Kosma, Theodora
  • Lawless, Martina
  • Messina, Julian
  • Room, Tairi

Abstract

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. This paper broadens the analysis beyond downward rigidity in base wages by investigating the use of other margins of labor cost adjustment at the firm level. Using data from a unique survey, the authors find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labor. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. The paper also shows how the margins of adjustment chosen are affected by firm and worker characteristics.

Suggested Citation

  • Babecky, Jan & Caju, Philip Du & Kosma, Theodora & Lawless, Martina & Messina, Julian & Room, Tairi, 2009. "The margins of labor cost adjustment : survey evidence from European firms," Policy Research Working Paper Series 5160, The World Bank.
    • Handle: RePEc:wbk:wbrwps:5160
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    References listed on IDEAS

    as
    1. Holden Steinar & Wulfsberg Fredrik, 2008. "Downward Nominal Wage Rigidity in the OECD," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-50, April.
    2. Lorenz Goette & Uwe Sunde & Thomas Bauer, 2007. "Wage Rigidity: Measurement, Causes and Consequences," Economic Journal, Royal Economic Society, vol. 117(524), pages 499-507, November.
    3. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
    4. Galí, Jordi & Gertler, Mark, 1999. "Inflation Dynamics: A Structural Economic Analysis," CEPR Discussion Papers 2246, C.E.P.R. Discussion Papers.
    5. Kahn, Shulamit, 1997. "Evidence of Nominal Wage Stickiness from Microdata," American Economic Review, American Economic Association, vol. 87(5), pages 993-1008, December.
    6. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2007. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 195-214, Spring.
    7. Yu-Fu Chen & Michael Funke, 2003. "Labour Demand in Germany: An Assessment of Non- Wage Labour Costs," Dundee Discussion Papers in Economics 154, Economic Studies, University of Dundee.
    8. Jan Babecký & Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2010. "Downward Nominal and Real Wage Rigidity: Survey Evidence from European Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(4), pages 884-910, December.
    9. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Labor Markets; Labor Policies; Environmental Economics&Policies; Microfinance; Economic Theory&Research;
    All these keywords.

    JEL classification:

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

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