Rigid Labour Compensation and Flexible Employment ? Firm-Level Evidence with Regard to Productivity for Belgium
National Bank of Belgium Working Paper No. 159
45 Pages Posted: 28 Sep 2010
Date Written: March 11, 2009
Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year.
Keywords: Labour Compensation, Employment, Hours, Total Factor Productivity
JEL Classification: J30, J60
Suggested Citation: Suggested Citation