European Firm Adjustment During Times of Economic Crisis

42 Pages Posted: 7 Apr 2015

See all articles by Silvia Fabiani

Silvia Fabiani

Bank of Italy

Ana Lamo

European Central Bank (ECB)

Julian Messina

World Bank

Tairi Room

Bank of Estonia

Date Written: April 7, 2015


This paper exploits a unique cross-country, firm-level survey to study the responses of European firms to the sharp demand and credit contraction triggered by the global Great Recession of 2009. The analysis reveals that cost reduction — particularly labour cost reduction through the adjustment of quantities rather than prices — was the prevailing strategy that firms had adopted by summer 2009. Remarkably, not even during the worst postwar recession did employers cut base wages to reduce costs. Different combinations of adjustment strategies are apparent, and the particular choices of labour costs adjustments depend substantially on countries’ institutional settings.

Keywords: labour costs, margins, demand and credit shocks, employment, firm survey, wage cuts, European Union

JEL Classification: J30, J32, J33, J51

Suggested Citation

Fabiani, Silvia and Lamo, Ana and Messina, Julián and Room, Tairi, European Firm Adjustment During Times of Economic Crisis (April 7, 2015). ECB Working Paper No. 1778, Available at SSRN:

Silvia Fabiani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Ana Lamo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Julián Messina

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Tairi Room

Bank of Estonia ( email )

Estonia Building 13
15095 Tallinn

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