Downward Wage Rigidity and Labour Mobility

68 Pages Posted: 15 Mar 2005

See all articles by Thomas Cornelißen

Thomas Cornelißen

University of Hannover

Olaf Hübler

University of Hannover; IZA Institute of Labor Economics

Date Written: March 2005

Abstract

Using data from the German Socio-Economic Panel (GSOEP) effects of being individually affected by downward wage rigidity on layoffs, quits and intra-firm mobility are investigated. We measure the individual extent of wage rigidity within a structural empirical model that allows us to estimate the notional wage growth which is about 1.4 % on average over the whole period. Wage growth is swept up by 3.3 % through wage rigidity and 62 % of the work force are in the real rigid regime. We find negative effects of wage sweep-up on quits, layoffs and promotions. This is consistent with a core-periphery view of the labour force, where a core work force is at the same time protected from layoffs and from wage cuts, whereas a peripheral work force provides a buffer for adjustment and suffers from both flexible wages and more insecure jobs. Reducing promotions for high wage sweep-up workers seems to be strategy of employers to circumvent wage rigidity. This suggests that it is not a pay policy chosen by the employer, but that it is imposed upon the employer through bargaining power. However, decreased promotion opportunities do not seem to fully outweigh the benefit of generous wage growth.

Keywords: wage rigidity, wage sweep up, job mobility, quits, layoffs, promotions

JEL Classification: J31, J63

Suggested Citation

Cornelißen, Thomas and Hübler, Olaf, Downward Wage Rigidity and Labour Mobility (March 2005). IZA Discussion Paper No. 1523. Available at SSRN: https://ssrn.com/abstract=684018

Thomas Cornelißen

University of Hannover ( email )

Welfengarten 1
D-30167 Hannover, 30167
Germany

Olaf Hübler (Contact Author)

University of Hannover ( email )

Institute of Quantitative Economic Research
D-30167 Hannover
Germany
+49 511 762 4794 (Phone)
+49 511 762 3923 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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