How Selective are Real Wage Cuts? A Micro-Analysis Using Linked Employer-Employee Data

32 Pages Posted: 31 Oct 2013

See all articles by Boris Hirsch

Boris Hirsch

University of Erlangen-Nuremberg

Thomas Zwick

University of Würzburg - Business Administration & Economics; Centre for European Economic Research (ZEW); Maastricht University - Research Centre for Education and the Labour Market (ROA)

Multiple version iconThere are 3 versions of this paper

Date Written: October 30, 2013

Abstract

Using linked employer-employee panel data for Germany, this paper investigates whether firms implement real wage reductions in a selective manner. In line with insider-outsider and several strands of efficiency wage theory, we find strong evidence for selective wage cuts with high-productivity workers being spared even when controlling for permanent differences in firms’ wage policies. In contrast to some recent contributions stressing fairness considerations, we also find that wage cuts increase wage dispersion among peers rather than narrowing it. Notably, the same selectivity pattern shows up when restricting our analysis to firms covered by collective agreements or having a works council.

Keywords: real wage rigidity, real wage cuts, selectivity, Germany

JEL Classification: J30, J31

Suggested Citation

Hirsch, Boris and Zwick, Thomas, How Selective are Real Wage Cuts? A Micro-Analysis Using Linked Employer-Employee Data (October 30, 2013). ZEW - Centre for European Economic Research Discussion Paper No. 13-086. Available at SSRN: https://ssrn.com/abstract=2347385 or http://dx.doi.org/10.2139/ssrn.2347385

Boris Hirsch

University of Erlangen-Nuremberg ( email )

Schloßplatz 4
Erlangen, Bavaria 91054
Germany

HOME PAGE: http://www.arbeitsmarkt.wiso.uni-erlangen.de/english/hirsch_e.htm

Thomas Zwick (Contact Author)

University of Würzburg - Business Administration & Economics ( email )

Sanderring 2
Wuerzburg, D-97070
Germany

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Maastricht University - Research Centre for Education and the Labour Market (ROA) ( email )

P.O. Box 616
Maastricht, MD6200
Netherlands

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