Rigid Wages and Flexible Contracts

Abstract

We study the relationship between contractual flexibility and nominal wage rigidity using administrative data from the Netherlands. Our empirical analysis reveals that contracts featuring flexible-hours exhibit a higher probability of a wage change compared to fixed-hour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts - with relatively more downward adjustments in flexible-hour contract wages in response to aggregate unemployment. These results point to the importance of contract features in general and flexibility in hours in particular for the variability of wages.

Keywords: Time & state dependency of wages, microdata, flexible-hour contracts.