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

Babecký, Jan; Caju, Philip Du; Kosma, Theodora; Lawless, Martina; Messina, Julian; Rõõm, Tairi

Download This Paper

Open PDF in Browser

Add Paper to My Library

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

World Bank Policy Research Working Paper No. 5160

36 Pages Posted: 20 Apr 2016

See all articles by Jan Babecký

Martina Lawless

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

Tairi Rõõm

Bank of Estonia

Date Written: December 1, 2009

Abstract

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

Keywords: Labor Markets, Labor Policies, Environmental Economics & Policies, Microfinance, Economic Theory & Research

Suggested Citation: Suggested Citation

Babecky, Jan and Caju, Philip Du and Kosma, Theodora and Lawless, Martina and Messina, Julián and Rõõm, Tairi, The Margins of Labor Cost Adjustment: Survey Evidence from European Firms (December 1, 2009). World Bank Policy Research Working Paper No. 5160, Available at SSRN: https://ssrn.com/abstract=1533678