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Wage Dynamics and Financial Performance: Evidence from Czech Firms

Jan Babecký, Kamil Galuscak and Diana Zigraiova ()

Working Papers from Czech National Bank, Research Department

Abstract: This paper examines how the financial performance of a firm affects its wage policy. For this purpose, we match data on Czech firms from the Wage Dynamics Network survey covering the period 2010-2013 with balance sheet data. Controlling for a number of firm-specific characteristics and the environment in which firms operate, we find that financial performance matters for wage setting: contractual wages are more likely to grow in firms with a higher ratio of cash flow to total assets and in firms that invest more. Conversely, firms that froze or cut contractual wages during the survey period had lower cash flow over total assets, but not necessarily a lower investment ratio. The flexible wage component exhibits a similar pattern, but is more sensitive to demand shocks and firms' financial conditions.

Keywords: Base wages; financial performance; flexible wage component; survey data; wage setting (search for similar items in EconPapers)
JEL-codes: C83 J31 J41 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur, nep-lma and nep-tra
Date: 2017-12
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2017/14

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