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

Fernando Martins and Daniel Dias
Authors registered in the RePEc Author Service: Carlos Robalo Marques

Working Papers from Banco de Portugal, Economics and Research Department

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 bonus and other monetary or non-monetary benefits, slowing down or freezing the rate at which promotions are filled, or recruiting new employees at wageslower than those received by the employees that have left the firm. We show that the utilization 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 labourcost adjustment margins that firms can use in bad times.

JEL-codes: J32 J60 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: 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 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201212

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