How do European firms adjust their labour costs when nominal wages are rigid?

Babecký, Jan; Caju, Philip Du; Κοσμά, Θεοδώρα; Lawless, Martina; Messina, Julián; Rõõm, Tairi

doi:10.1016/j.labeco.2012.03.010

Cited by 51 publications

(44 citation statements)

References 12 publications

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“…The fact that indefinite-term contracts are more restrictive than fixed-term contracts is consistent with the fact that most hiring (between 70 and 80 % of all entries) by French firms occurs through fixed-term contracts Kramarz 1999, 2003). 8 Moreover, since the wages of incumbent workers (whatever their job contracts) tend to be inflexible downward, wage adjustment is very likely to be implemented through hiring, as suggested by Babecký et al (2012) who show that the main strategy used by French firms to adjust their labor cost is through labor turnover.…”

Section: French Institutionsmentioning

confidence: 99%

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How do rigid labor markets absorb immigration? Evidence from France

Edo

2016

IZA J Migration

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This paper investigates how immigration can affect the labor market outcomes of native workers when their wages are rigid. I use a rich dataset for France and decompose the native workers according to whether they are covered by fixed-term or indefinite-term contracts. Indefinite-term contracts are associated with higher wage protection than fixed-term contracts that allow firms to adjust wages as contracts expire. I use an empirical methodology which captures the direct effects of an immigrant-induced increase in labor supply on the labor market outcomes of natives who have similar skills. I find that the monthly wage of native workers covered by fixed-term contracts decreases in response to immigration, while employment is the margin through which native workers on indefinite-term contracts is affected.JEL codes: F22, J23, J41

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Section: French Institutionsmentioning

confidence: 99%

“…The role played by labor market institutions in shaping the labor market effects of immigration should be particularly important in continental European countries since they tend to have rigid wages (Nickell 1997;Babecký et al 2010Babecký et al , 2012Messina et al 2010).…”

Section: Introductionmentioning

confidence: 99%

How do rigid labor markets absorb immigration? Evidence from France

Edo

2016

IZA J Migration

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“…Earnings are defined as annual 'reckonable' income for the calendar year 6 ; this is gross income from all sources including bonuses and taxable benefits-in-kind after pension contributions, which are not taxable, have been deducted. 7 The fact that irregular earnings are included is important because firms can adjust labour costs through these components as well as basic pay; for evidence on the widespread use of adjustments to non-core pay, see Babecky et al (2012), Du Caju et al (2013) and Dias et al (2013). In addition, firms can react to labour market shocks by changing hours of work, so we believe that data on earnings are the most appropriate for capturing the flexibility firms have in adjusting costs.…”

Section: Datamentioning

confidence: 99%

Wage flexibility and the great recession: the response of the Irish labour market

2015

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In this paper we examine nominal earnings flexibility in Ireland during the Great Recession. The Irish case is particularly interesting because it has been one of the countries most affected by the crisis. Using tax return data that are free of reporting error and cover the entire population of workers, we find a substantial degree of downward nominal wage flexibility in Ireland in the pre-crisis period. Furthermore, we observe a significant change in wage dynamics since the crisis began. It was only after the peak crisis period that pay freezes became a feature of the Irish wage change distribution.JEL Classification: J31, J38, D31

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“…More precisely, there is a relation between margin and labor cost. For instance, a study by the European Central Bank (ECB) and the Organization for Economic Co-operation and Development (OECD) reveals that larger firms make more extensive use of margin for labor cost-cutting strategies, i.e., firms choose to reduce benefits as a cost-cutting strategy (Babecky et al, 2012). In addition, the positive relation between firm size and the use of cost-cutting strategies that is monotonically increasing and highly significant, is uncovered.…”

Section: F Other Inter-factor Correlationsmentioning

confidence: 99%