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Asymmetric wage adjustment and employment in European firms

Petra Marotzke, Anderton Robert, Bairrao Ana, Clémence Berson () and Peter Tóth ()
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Bairrao Ana: European Central Bank, Frankfurt am Main, Germany

The B.E. Journal of Macroeconomics, 2020, vol. 20, issue 2, 25

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.

Keywords: employment; demand shocks; wage rigidity (search for similar items in EconPapers)
JEL-codes: J23 J30 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Asymmetric wage adjustment and employment in European firms (2017) Downloads
Working Paper: Asymmetric wage adjustment and employment in European firms (2017) Downloads
Working Paper: Asymmetric wage adjustment and employment in European firms (2017) Downloads
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