Do Bonuses Offset the Allocative Effects of Downward Rigid Base Wages?

Anne Kathrin Funk and Daniel Kaufmann

AEA Papers and Proceedings, 2022, vol. 112, 486-90

Abstract: We measure the labor market outcomes of employees with downward rigid base wages after an unexpected deflationary shock in Switzerland using a firm survey matched with Social Security register data. The employees that additionally receive downward flexible compensation, such as bonuses, are less likely to lose their job after a deflationary shock than those only receiving a base wage. Only a modest share of employees receives downward flexible compensation, however. Therefore, these compensation schemes do not offset the overall allocative effects of downward rigid base wages.

JEL-codes: E31 J31 J33 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/pandp.20221097

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