Babeckij, Jan Berson, Clémence Fadejeva, Ludmila Lamo, Ana Marotzke, Petra Martins, Fernando Strzelecki, Pawe±
Year of Publication:
[Journal:] IZA Journal of Labor Policy [ISSN:] 2193-9004 [Volume:] 8 [Year:] 2019 [Issue:] 1 [Pages:] 1-18
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 when they are hit by negative shocks. Firms thus use non-base wage components as a strategic margin to overcome base wage rigidity. We also show that while non-base wage components exhibit some degree of downward rigidity this is smaller than that observed for base wages.
Downward nominal wage rigidity Bonuses Firm survey European Union