Wage rigidity and employment adjustment at the firm level: Evidence from survey data

Daniel Dias, Carlos Marques and Fernando Martins

Labour Economics, 2013, vol. 23, issue C, 40-49

Abstract: This paper uses firm level survey data from Portugal to investigate how firms adjust their labour costs in the presence of wage rigidities. We document that Portuguese firms, besides reducing employment or freezing nominal base wages, also make frequent use of other cost-cutting strategies, like freezing or cutting bonuses and other monetary or non-monetary benefits, slowing down or freezing the rate at which promotions are filled, or recruiting new employees at wages lower than those received by the employees that have left the firm. We show that the utilisation of these different adjustment strategies is affected by workers' and firms' attributes, as well as by some indicators of the economic environment in which firms operate. More importantly, we provide evidence that firms with more flexible base wages are less likely to reduce employment, and that such effect may be significantly strengthened by the availability of alternative labour-cost adjustment margins that firms can use in bad times.

Keywords: Wage rigidity; Non-wage labour costs; Unemployment; Probit model (search for similar items in EconPapers)
JEL-codes: C35 J32 J62 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Working Paper: Wage rigidity and employment adjustment at the firm level: Evidence from survey data (2013)
Working Paper: Wage rigidity and employment adjustment at the firm level: evidence from survey data (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:23:y:2013:i:c:p:40-49

DOI: 10.1016/j.labeco.2013.02.001

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