Rigid Labour Compensation and Flexible Employment ? Firm-Level Evidence with Regard to Productivity for Belgium

Abstract

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. Terms of use: Documents in WO R K I N G PA PE R S E R I E S N O 1021 / M A R C H 20 0 9This 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=1337486.In 2009 all ECB publications feature a motif taken from the €200 banknote. RIGID LABOUR COMPENSATION AND FLEXIBLE EMPLOYMENT? FIRM-LEVEL EVIDENCE WITH 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 1021March 2009 Abstract 4 Non-technical summary 5

Do Firms Provide Wage Insurance against Shocks?

“…However, the sum of the two coefficients of the production function is generally less than one, implying decreasing returns to scale in most of the industries. While many of the previous papers on production function estimation report higher returns to scale, my results are not out of line with the existing empirical literature (see, for example, Fuss and Wintr, ).…”

Capital Share Dynamics When Firms Insure Workers

“…8 There is strong evidence that firms insure workers. Guiso, Pistaferri, and Schivardi (2005), the first to study insurance within the firm using U.S. microdata, find that firms fully insure workers against transitory shocks but not against permanent shocks (see Rute Cardoso andPortela (2009), Fuss andWintr (2009), Lagakos andOrdoñez (2011), Friedrich et al (2014), and Fagereng, Guiso, and Pistaferri (2017), for foreign evidence). Xiaolan (2014) finds direct evidence of increased cash flow volatility for firms that provide better insurance to workers.…”

Portfolio choices, firm shocks and uninsurable wage risk

“…23 In the final column (4) we implement a "double control function" estimator. 24 In a first step we follow Blundell and Smith (1986), run a regression of our endogenous variable 2 it on the (included and excluded) instruments and their means (to account for individual fixed e↵ects in the wage variances, as suggested by Chamberlain, 1984), and save the residuals, b e it . 25 In a second step, we run a Tobit regression on 2 it , the residual b e it , the exogenous covariates W it , and their means (to account for individual fixed e↵ects in the risky share equation).…”

“…We assume the latter di↵erence is small. 24 We thank Francis Vella for suggesting this approach. 25 In other words, we assume that 2 it = z 0 it ✓ + mi + "it.…”