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Rigid wages and contracts: Time- versus state-dependent wages in the Netherlands

Anderson Grajales-Olarte, Burak R. Uras and Nathanaël Vellekoop ()

No 258, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We study nominal wage rigidity in the Netherlands using administrative data, which has three key features: (1) high-frequency (monthly), (2) high-quality (administrative records), and (3) high coverage (the universe of workers and the universe of firms). We find wage rigidity patterns in the data that are similar to wage behavior documented for other European countries. In particular we find that the hazard function has two spikes, one at 12 months and another one at 24 months and wage changes have time and state dependency components. As a novel and important piece of evidence we also uncover substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract. In particular, contracts featuring flexible hours, such as on-call contracts, exhibit a higher probability of a change in the contract wage compared to fixed hour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts - with relatively more downward adjustments in flexible-hour contract wages in response to aggregate unemployment.

Keywords: wage rigidity; flexible-hour contracts; microdata; state dependency; time dependency (search for similar items in EconPapers)
JEL-codes: E24 J31 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cta, nep-eur and nep-mac
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https://www.econstor.eu/bitstream/10419/203113/1/1676012028.pdf (application/pdf)

Related works:
Working Paper: Rigid Wages and Contracts: Time- versus State-Dependent Wages in the Netherlands (2019) Downloads
Working Paper: Rigid Wages and Contracts: Time- versus State-Dependent Wages in the Netherlands (2019) Downloads
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