Budapest Working Papers on the Labour Market BWP - 2010/5
Using firm-level and individual panel data from 2008-2009, the paper looks at how Hungarian firms combined employment reduction with "softer" measures like short-work and wage cuts, in response to the crisis. The data suggest that the wage distribution remained practically unchanged while hours reductions did not extend beyond the scope of a government-supported job retention scheme (requiring that the subsidized workers are reclassified as part-timers). In the private sector, the burden of adjustment fell entirely on employment. Variations in the changes of employment are studied using firm-level longitudinal data and controlling for the changes in the composition of the workforce. The dominance of adjustment on the extensive margin is explained, among others, by the lack of institutions encouraging soft adjustment, minimum wage regulations, and the fact that firms brought hiring to a halt rather than engaging in mass dismissals.