Asymmetric Wage Adjustment and Employment in European Firms

27 Pages Posted: 13 Oct 2017

See all articles by Petra Marotzke

Petra Marotzke

Deutsche Bundesbank

Robert Anderton

European Central Bank (ECB)

Ana Bairrao

European Central Bank (ECB)

Clemence Berson

Banque de France

Peter Toth

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

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Date Written: October 11, 2017

Abstract

We explore the impact of wage adjustment on employment with a focus on the role of downward nominal wage rigidities. We use a harmonised survey dataset, which covers 25 European countries in the period 2010-2013. These data are particularly useful for this paper given the firm-level information on the change in economic conditions and collective pay agreements. Our findings confirm the presence of wage rigidities in Europe: first, collective pay agreements reduce the probability of downward wage adjustment; second, the rise in the probability of downward base wage responses following a decrease in demand is significantly smaller than the rise in the probability of an upward wage response associated with an increase in demand. Estimation results point to a negative effect of downward wage rigidities on employment at the firm level.

Keywords: Wage Rigidity, Employment, Demand Shocks

JEL Classification: J23, J30

Suggested Citation

Marotzke, Petra and Anderton, Robert and Bairrao, Ana and Berson, Clemence and Toth, Peter, Asymmetric Wage Adjustment and Employment in European Firms (October 11, 2017). ECB Working Paper No. 2103, Available at SSRN: https://ssrn.com/abstract=3052069

Petra Marotzke

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Robert Anderton (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Ana Bairrao

European Central Bank (ECB)

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Clemence Berson

Banque de France ( email )

Paris
France

Peter Toth

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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