Firms’ Adjustment During 2010-13: Evidence from the Wage Dynamics Survey

34 Pages Posted: 12 Dec 2015

Date Written: December 11, 2015

Abstract

This paper sets out the main lessons learnt from a survey of wage-setting in the United Kingdom, carried out as part of the European Central Bank’s Wage Dynamics Network survey covering 25 European countries. The survey covered the 2010-13 period, during which most firms experienced an increase in demand and a moderate increase in costs as the economy recovered from the Great Recession. We found the median frequency of wage-setting to be annual and that around 30% of firms directly and explicitly related changes in their base wage to inflation. There was also some evidence of downward nominal wage rigidity with around 25% of firms freezing wages in 2010, although by 2014 this had fallen to around 10%. The survey suggested that theories of wage rigidity based around the ability of workers to ‘shirk’ and/or fairness considerations explained why firms were reluctant to cut wages.

Keywords: Wage-setting, survey evidence, labour market adjustment

JEL Classification: E24, J30

Suggested Citation

Millard, Stephen and Tatomir, Srdan, Firms’ Adjustment During 2010-13: Evidence from the Wage Dynamics Survey (December 11, 2015). Bank of England Working Paper No. 568, Available at SSRN: https://ssrn.com/abstract=2702433 or http://dx.doi.org/10.2139/ssrn.2702433

Stephen Millard (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Srdan Tatomir

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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