Reasons for Wage Rigidity in Germany

Franz, Wolfgang; Pfeiffer, Friedhelm

doi:10.1111/j.1467-9914.2006.00345.x

Cited by 60 publications

(52 citation statements)

References 22 publications

(26 reference statements)

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Around three quarter of firms mention the efficiency wage argument against wage freezes as important. This survey thus confirms the high importance of the efficiency wage explanation for preventing wage cuts, as already found by Bewley (1999) for the U.S. and Franz and Pfeiffer (2006) for Germany. According to our data, the argument appears more relevant in firms not following a collective agreement.…”

supporting

confidence: 88%

“…This fits with the high labour intensity of the service sector, relatively higher general worker turnover, and the perception of a tighter labour market among service sector firms. Considering the higher share of white collar workers in services, the result is also consistent with a finding by Franz and Pfeiffer (2006), namely that negative signals for new hires are a more important cause of wage rigidity for better skilled workers.…”

supporting

confidence: 86%

See 1 more Smart Citation

Sectoral Differences in Wage Freezes and Wage Cuts: Evidence from a New Firm Survey

Bonin

Radowski

2008

SSRN Journal

View full text Add to dashboard Cite

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08097.pdf Non-technical summaryDownward rigid wages are of major importance in economic policy and are severely discussed in the public. Especially in Germany, where the nominal wage level is above that of its main international competitors, economists often recommend to freeze or lower nominal wages, at least in adverse economic conditions. This study first analyzes how often nominal wages are frozen or cut. Wage cutting appears as a rather rare event. Over a five year time span, only about 16% of firms in manufacturing and 13% of firms in services ever cut their wages. Compared to wage cuts, wage freezes are much more frequent. They occur three times as often as wage cuts in manufacturing, and more than four times as often in services. Taken together, the evidence suggests that German firms have become quite flexible in the last five years to adjust at the wage margin when poor business conditions required it.Wage freezes are more frequent in services than in manufacturing, whereas wage cuts are less frequent. These significant sector differences do not vanish if one controls for individual firm characteristics influencing the incidence of wage freezes and wage cuts, notably coverage by collective agreements and the degree of price competition on the product market.Which reasons prevent the firms from cutting their wages? In case of wage cuts, three-fourths of the employers fear the decreasing morale and the poorer effort and/or service of their employees. Additionally, about 60% of firms refer to labour legislation and 40% to collective wage agreements. The key difference between the responses of manufacturing and services appears in the realm of worker turnover. One third of firms in services fear increasing quits and excess worker turnover. This reason could explain fewer wage cuts in services. According to our empirical estimates, this argument is mentioned much more frequently by services firms than by manufacturing firms, even after accounting for the differences in relevant firm characteristics. The sector specific effect probably reflects the fact that actual worker turnover rates in services are much higher -more than twice as high, in our data -than in manufacturing.The survey includes a wide range of services. Therefore, within the service sector the incidence of nominal rigidity broadly varies. Wage freezes are most frequent in the IT sector where the relevant ...

show abstract

supporting

confidence: 88%

supporting

confidence: 86%

Sectoral Differences in Wage Freezes and Wage Cuts: Evidence from a New Firm Survey

Bonin

Radowski

2008

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…In addition, there was fierce wage competition for entrants due to unemployment rates as high as ten percent in Germany. Compared to entrants, incumbent workers in Germany enjoy some protection against wage competition due to, for instance, strong unions and/or efficiency wage considerations (Franz and Pfeiffer, 2006). Therefore, one might expect decreasing returns to education for the baby boom cohorts and increasing returns to education for individuals born after 1964 when cohort size started to decline sharply.…”

Section: Educational Expansion Wages and The Labour Market In West Gmentioning

confidence: 99%

Educational Expansion and its Heterogeneous Returns for Wage Workers

Gebel

Pfeiffer

2007

SSRN Journal

Self Cite

View full text Add to dashboard Cite

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp07010.pdf Non technical summaryThis paper examines the evolution of returns to education in the West German labour market in the period 1984-2004. Graduates from the period of educational expansion in the 1960s and 70s entered the labour market during the period of observation. With a lag, this educational expansion contributed to skill upgrading of the labour force. Our paper tries to contribute empirically to the question, whether this upgrading of schooling "devaluated" its monetary returns in the labour market in the longer run. Based on data from the German Socio-Economic Panel (GSOEP) we estimate returns to education over the past twenty years in West Germany differentiated by socio-economic characteristics to take into account demographic factors and the rise in female labour market participation.A major challenge for empirical research on returns to education is that school choice involves complex decision processes. For instance, students may select themselves into secondary or post secondary education based on unobserved factors like ability, preferences, and parental household income. Students may choose to go to university because of their high skills and abilities. Students from a poor household may leave the educational system earlier because of financial constraints. As a result presumably there will be no single effect of an educational choice on wages but rather a whole distribution of such effects, i.e. returns vary across individuals. In order to tackle these issues we apply two estimation methods. On the one hand, Wooldridge's (2004) approach uses a set of observable control variables. On the other hand, Garen's (1984) control function approach requires an instrumental variable that influences the educational decisions but not the wage outcome.For the population of workers from the GSOEP, we find that both approaches produce estimates of average returns to education that decrease until the late 1990s and increase significantly afterwards. According to the Wooldridge approach, returns to one additional year of education fell from 6.5 percent in 1984 to 4.9 percent in 1998. From 1998 onwards, we find increasing returns to education reaching a new local maximum of 6.4 percent in 2002 which is just below the overall maximum in 1984.Regarding the gender aspects, the average returns to education seem to have been larger for women during the 1980s and early 199...

show abstract

“…Franz and Pfeiffer (2006) report survey evidence for Germany indicating that the main reasons for wage rigidity of high-skilled workers are the existence of specific skills and the negative signal a wage cut may represent for newly-hired staff. On the contrary, wage rigidity of less-skilled workers is mainly attributable to labour union contracts and implicit contracts.…”

Section: Ecb Working Paper Series No 1006mentioning

confidence: 99%

Understanding Sectoral Differences in Downward Real Wage Rigidity: Workforce Composition, Institutions, Technology and Competition

2009

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper can be downloaded without charge from http://www.ecb.europa.eu or from the Social Science Research Network electronic library at http://ssrn.com/abstract_id=1333606. Terms of use: Documents inIn 2009 all ECB publications feature a motif taken from the €200 banknote. UNDERSTANDING SECTORAL DIFFERENCES IN DOWNWARD Wage Dynamics NetworkThis paper contains research conducted within the Wage Dynamics Network (WDN). The WDN is a research network consisting of economists from the European Central Bank (ECB) and the national central banks (NCBs) of the EU countries. The WDN aims at studying in depth the features and sources of wage and labour cost dynamics and their implications for monetary policy. The specific objectives of the network are: i) identifying the sources and features of wage and labour cost dynamics that are most relevant for monetary policy and ii) clarifying the relationship between wages, labour costs and prices both at the firm and macro-economic level.The WDN is chaired by Frank Smets (ECB). Giuseppe Bertola (Università di Torino) and Julian Messina (Universitat de Girona) act as external consultants and Ana Lamo (ECB) as Secretary.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB, chairperson), Philip Vermeulen (ECB), Giuseppe Bertola, Julian Messina, Jan Babecký (CNB), Hervé Le Bihan (Banque de France) and Thomas Mathä (Banque centrale du Luxembourg).The paper is released in order to make the results of WDN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB. ECB Working Paper Series No 1006February 2009 Abstract 4 Non-technical summary 5

show abstract

Reasons for Wage Rigidity in Germany

Cited by 60 publications

References 22 publications

Sectoral Differences in Wage Freezes and Wage Cuts: Evidence from a New Firm Survey

Sectoral Differences in Wage Freezes and Wage Cuts: Evidence from a New Firm Survey

Educational Expansion and its Heterogeneous Returns for Wage Workers

Understanding Sectoral Differences in Downward Real Wage Rigidity: Workforce Composition, Institutions, Technology and Competition

Contact Info

Product

Resources

About