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Flexible wage components as a source of wage adaptability to shocks:evidence from European firms, 2010–2013

Fernando Martins (), Jan Babecký, Clémence Berson (), Ludmila Fadejeva, Ana Lamo, Petra Marotzke and Paweł Strzelecki ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This paper provides evidence on the role of flexible wage components as a channel for firms to adjust costs in case of the adverse shocks. It uses data from a firm-level survey for 25 European countries that covers the period 2010–2013. We find that firms subject to nominal wage rigidities, which prevent them from adjusting base wages, are more likely to cut flexible wage components in order to adjust labour costs when needed. Thus firms use flexible wage components as a buffer to overcome base wage rigidity. More generally, when base wages are able to adjust to negative shocks, the flexible wage components also react and their reaction is stronger than that of base wages.

JEL-codes: C81 J30 J32 P5 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec
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Working Paper: Non-base wage components as a source of wage adaptability to shocks: Evidence from European firms, 2010–2013 (2018) Downloads
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