Babecký, Jan Berson, Clémence Fadejeva, Ludmila Lamo, Ana Marotzke, Petra Martins, Fernando Strzelecki, Paweł
Year of Publication:
ECB Working Paper 2158
This paper provides evidence on the role of non-base wage components as a channel for firms to adjust labour costs in the event of 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 non-base wage components in order to adjust labour costs when needed. Firms thus use non-base wage components as a buffer to overcome base wage rigidity. We further show that while non-base wage components exhibit some degree of downward rigidity, they do so to a lesser extent than base wages.
downward nominal wage rigidity bonuses firm survey European Union