The determination of wages of newly hired employees: survey evidence on internal versus external factors

36 Pages Posted: 28 Jul 2022

See all articles by Daphne Nicolitsas

Daphne Nicolitsas

University of Crete - Department of Economics

Kamil Galuscak

Czech National Bank

Mary Keeney

Central Bank and Financial Services Authority of Ireland

Frank Smets

Ghent University - Department of General Economics; Bank for International Settlements (BIS) - Monetary and Economic Department

Pawel Strzelecki

National Bank of Poland; Warsaw School of Economics (SGH)

Matija Vodopivec

Bank of Slovenia

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2011

Abstract

This paper uses information from a rich firm-level survey on wage and price-setting procedures, in around 15,000 firms in 15 European Union countries, to investigate the relative importance of internal versus external factors in the setting of wages of newly hired workers. The evidence suggests that external labour market conditions are less important than internal pay structures in determining hiring pay, with internal pay structures binding even more often when there is labour market slack. When explaining their choice firms allude to fairness considerations and the need to prevent a potential negative impact on effort. Cross-country differences, that do exist, are found to depend on institutional factors (bargaining structures); countries in which collective agreements are more prevalent and collective agreement coverage is higher report to a greater extent internal pay structures as the main determinant of hiring pay. Within-country differences are found to depend on firm and workforce characteristics; strong association between the use of external factors in hiring pay, on the one hand, and skills (positive) and tenure (negative) on the other.

Keywords: wage rigidity, newly hired workers, internal pay structure, employee turnover, business cycle, survey data

JEL Classification: J31, J41, J51

Suggested Citation

Nicolitsas, Daphne and Galuscak, Kamil and Keeney, Mary and Smets, Frank and Strzelecki, Pawel and Vodopivec, Matija, The determination of wages of newly hired employees: survey evidence on internal versus external factors (April 1, 2011). Bank of Greece Working Paper No. 129, Available at SSRN: https://ssrn.com/abstract=4168587 or http://dx.doi.org/10.2139/ssrn.4168587

Daphne Nicolitsas (Contact Author)

University of Crete - Department of Economics ( email )

Rethymno, GR-74100
Greece

Kamil Galuscak

Czech National Bank ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Mary Keeney

Central Bank and Financial Services Authority of Ireland ( email )

P.O. 559 Dame Street
Dublin 2, D2
Ireland

Frank Smets

Ghent University - Department of General Economics ( email )

Hoveniersberg 24
Ghent, 9000
Belgium

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Pawel Strzelecki

National Bank of Poland

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Matija Vodopivec

Bank of Slovenia ( email )

Slovenska cesta 35
Ljubljana, 1505
Slovenia

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