The Margins of Labour Cost Adjustment: Survey Evidence from European Firms

National Bank of Belgium Working Paper No. 183

42 Pages Posted: 28 Sep 2010

See all articles by Jan Babecký

Jan Babecký

Czech National Bank (CNB)

Philip Du Caju

National Bank of Belgium

Theodora Kosma

Bank of Greece

Martina Lawless

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department

Julian Messina

World Bank

Tairi Room

Bank of Estonia

Date Written: November 24, 2009

Abstract

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics.

Keywords: labour costs, wage rigidity, firm survey, European Union

JEL Classification: J30, C81, P5

Suggested Citation

Babecky, Jan and Du Caju, Philip and Kosma, Theodora and Lawless, Martina and Messina, Julián and Room, Tairi, The Margins of Labour Cost Adjustment: Survey Evidence from European Firms (November 24, 2009). National Bank of Belgium Working Paper No. 183, Available at SSRN: https://ssrn.com/abstract=1683347 or http://dx.doi.org/10.2139/ssrn.1683347

Jan Babecky (Contact Author)

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Philip Du Caju

National Bank of Belgium ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Theodora Kosma

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Martina Lawless

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department ( email )

Dame Street
P.O. Box 559
Dublin 2
Ireland

Julián Messina

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Tairi Room

Bank of Estonia ( email )

Estonia Building 13
15095 Tallinn
Estonia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
38
Abstract Views
523
PlumX Metrics