Why Firms Avoid Cutting Wages : Survey Evidence from European Firms

Firms very rarely cut nominal wages, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a r...

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Main Authors:	Du Caju, Philip, Kosma, Theodora, Lawless, Martina, Messina, Julian, Room, Tairi
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014
Subjects:	ADVERSE SELECTION AVERAGE WAGE BARGAINING INSTITUTIONS BARGAINING POWER BARGAINING SYSTEM BUSINESS CYCLE CLERKS COLLECTIVE AGREEMENT COLLECTIVE AGREEMENTS COLLECTIVE BARGAINING COLLECTIVE BARGAINING AGREEMENTS COMPANY COMPETITIVE MARKETS DISMISSAL ECONOMIC SHOCKS EFFICIENCY WAGE MODELS EFFICIENCY WAGE THEORIES EFFICIENCY WAGE THEORY EFFICIENCY WAGES EMPLOYEE EMPLOYEE TURNOVER EMPLOYERS EMPLOYMENT CONTRACTS EMPLOYMENT TURNOVER EQUILIBRIUM UNEMPLOYMENT EXISTING WORKFORCE EXPANSIONS EXPLICIT CONTRACTS FIRING FIRM LEVEL FIRM SIZE FIRM SURVEY FIRMS FOREIGN OWNERSHIP HIGH WAGES HIRING HUMAN CAPITAL HUMAN RESOURCES IMPLICIT CONTRACTS INCOME INDUSTRIAL RELATIONS JOB EXPERIENCE JOBS LABOR CONTRACTS LABOR ECONOMICS LABOR FORCE LABOR MARKET LABOR MARKET FLEXIBILITY LABOR MARKET REFORM LABOR MARKET REFORMS LABOR MARKETS LABOR PRODUCTIVITY LABOR REGULATION LABOR RELATIONS LABOR TURNOVER LABOUR LABOUR COST LABOUR COSTS LABOUR FORCE LABOUR MARKET LABOUR MARKET INSTITUTIONS LABOUR MARKET PARTICIPANTS LABOUR MARKET REFORM LABOUR MARKETS LABOUR REGULATION LABOUR REGULATIONS LABOUR RELATIONS LABOUR TURNOVER LABOUR UNIONS LAYOFFS LONG-TERM EMPLOYMENT MONITORING COSTS MOTIVATION NOMINAL WAGES POLITICAL ECONOMY PREVIOUS STUDIES PROBIT REGRESSIONS PRODUCT MARKET PRODUCT MARKET COMPETITION PRODUCTION PROCESS REAL WAGE REAL WAGES RECRUITMENT REMUNERATION RETAIL TRADE RISING UNEMPLOYMENT SKILLED EMPLOYEES SKILLED WORKERS STAFF TEMPORARY WORKERS TOTAL EMPLOYMENT TRADE UNIONS TRAINING COST TRAINING COSTS UNDEREMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT INSURANCE UNION DENSITIES UNIONIZATION WAGE BARGAINING WAGE BARGAINING SYSTEMS WAGE BILL WAGE DETERMINATION WAGE DISPERSION WAGE FLEXIBILITY WAGE INCREASE WAGE LEVEL WAGE RIGIDITIES WAGE RIGIDITY WHITE COLLAR WORKERS WORKER WORKER MORALE WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS
Online Access:	http://documents.worldbank.org/curated/en/2014/07/19878434/firms-avoid-cutting-wages-survey-evidence-european-firms http://hdl.handle.net/10986/19349

id	okr-10986-19349
recordtype	oai_dc
spelling	okr-10986-193492021-04-23T14:03:51Z Why Firms Avoid Cutting Wages : Survey Evidence from European Firms Du Caju, Philip Kosma, Theodora Lawless, Martina Messina, Julian Room, Tairi ADVERSE SELECTION AVERAGE WAGE BARGAINING INSTITUTIONS BARGAINING POWER BARGAINING SYSTEM BUSINESS CYCLE CLERKS COLLECTIVE AGREEMENT COLLECTIVE AGREEMENTS COLLECTIVE BARGAINING COLLECTIVE BARGAINING AGREEMENTS COMPANY COMPETITIVE MARKETS DISMISSAL ECONOMIC SHOCKS EFFICIENCY WAGE MODELS EFFICIENCY WAGE THEORIES EFFICIENCY WAGE THEORY EFFICIENCY WAGES EMPLOYEE EMPLOYEE TURNOVER EMPLOYERS EMPLOYMENT CONTRACTS EMPLOYMENT TURNOVER EQUILIBRIUM UNEMPLOYMENT EXISTING WORKFORCE EXPANSIONS EXPLICIT CONTRACTS FIRING FIRM LEVEL FIRM SIZE FIRM SURVEY FIRMS FOREIGN OWNERSHIP HIGH WAGES HIRING HUMAN CAPITAL HUMAN RESOURCES IMPLICIT CONTRACTS INCOME INDUSTRIAL RELATIONS JOB EXPERIENCE JOBS LABOR CONTRACTS LABOR ECONOMICS LABOR FORCE LABOR MARKET LABOR MARKET FLEXIBILITY LABOR MARKET REFORM LABOR MARKET REFORMS LABOR MARKETS LABOR PRODUCTIVITY LABOR REGULATION LABOR RELATIONS LABOR TURNOVER LABOUR LABOUR COST LABOUR COSTS LABOUR FORCE LABOUR MARKET LABOUR MARKET INSTITUTIONS LABOUR MARKET PARTICIPANTS LABOUR MARKET REFORM LABOUR MARKETS LABOUR REGULATION LABOUR REGULATIONS LABOUR RELATIONS LABOUR TURNOVER LABOUR UNIONS LAYOFFS LONG-TERM EMPLOYMENT MONITORING COSTS MOTIVATION NOMINAL WAGES POLITICAL ECONOMY PREVIOUS STUDIES PROBIT REGRESSIONS PRODUCT MARKET PRODUCT MARKET COMPETITION PRODUCTION PROCESS REAL WAGE REAL WAGES RECRUITMENT REMUNERATION RETAIL TRADE RISING UNEMPLOYMENT SKILLED EMPLOYEES SKILLED WORKERS STAFF TEMPORARY WORKERS TOTAL EMPLOYMENT TRADE UNIONS TRAINING COST TRAINING COSTS UNDEREMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT INSURANCE UNION DENSITIES UNIONIZATION WAGE BARGAINING WAGE BARGAINING SYSTEMS WAGE BILL WAGE DETERMINATION WAGE DISPERSION WAGE FLEXIBILITY WAGE INCREASE WAGE LEVEL WAGE RIGIDITIES WAGE RIGIDITY WHITE COLLAR WORKERS WORKER WORKER MORALE WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS Firms very rarely cut nominal wages, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why the firms avoid cutting wages. The paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in Western European (EU-15) countries but were one of the lowest ranked obstacles in the new EU member states in Central and Eastern Europe. 2014-08-15T14:40:59Z 2014-08-15T14:40:59Z 2014-07 http://documents.worldbank.org/curated/en/2014/07/19878434/firms-avoid-cutting-wages-survey-evidence-european-firms http://hdl.handle.net/10986/19349 English en_US Policy Research Working Paper;No. 6976 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Group, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia Europe
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ADVERSE SELECTION AVERAGE WAGE BARGAINING INSTITUTIONS BARGAINING POWER BARGAINING SYSTEM BUSINESS CYCLE CLERKS COLLECTIVE AGREEMENT COLLECTIVE AGREEMENTS COLLECTIVE BARGAINING COLLECTIVE BARGAINING AGREEMENTS COMPANY COMPETITIVE MARKETS DISMISSAL ECONOMIC SHOCKS EFFICIENCY WAGE MODELS EFFICIENCY WAGE THEORIES EFFICIENCY WAGE THEORY EFFICIENCY WAGES EMPLOYEE EMPLOYEE TURNOVER EMPLOYERS EMPLOYMENT CONTRACTS EMPLOYMENT TURNOVER EQUILIBRIUM UNEMPLOYMENT EXISTING WORKFORCE EXPANSIONS EXPLICIT CONTRACTS FIRING FIRM LEVEL FIRM SIZE FIRM SURVEY FIRMS FOREIGN OWNERSHIP HIGH WAGES HIRING HUMAN CAPITAL HUMAN RESOURCES IMPLICIT CONTRACTS INCOME INDUSTRIAL RELATIONS JOB EXPERIENCE JOBS LABOR CONTRACTS LABOR ECONOMICS LABOR FORCE LABOR MARKET LABOR MARKET FLEXIBILITY LABOR MARKET REFORM LABOR MARKET REFORMS LABOR MARKETS LABOR PRODUCTIVITY LABOR REGULATION LABOR RELATIONS LABOR TURNOVER LABOUR LABOUR COST LABOUR COSTS LABOUR FORCE LABOUR MARKET LABOUR MARKET INSTITUTIONS LABOUR MARKET PARTICIPANTS LABOUR MARKET REFORM LABOUR MARKETS LABOUR REGULATION LABOUR REGULATIONS LABOUR RELATIONS LABOUR TURNOVER LABOUR UNIONS LAYOFFS LONG-TERM EMPLOYMENT MONITORING COSTS MOTIVATION NOMINAL WAGES POLITICAL ECONOMY PREVIOUS STUDIES PROBIT REGRESSIONS PRODUCT MARKET PRODUCT MARKET COMPETITION PRODUCTION PROCESS REAL WAGE REAL WAGES RECRUITMENT REMUNERATION RETAIL TRADE RISING UNEMPLOYMENT SKILLED EMPLOYEES SKILLED WORKERS STAFF TEMPORARY WORKERS TOTAL EMPLOYMENT TRADE UNIONS TRAINING COST TRAINING COSTS UNDEREMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT INSURANCE UNION DENSITIES UNIONIZATION WAGE BARGAINING WAGE BARGAINING SYSTEMS WAGE BILL WAGE DETERMINATION WAGE DISPERSION WAGE FLEXIBILITY WAGE INCREASE WAGE LEVEL WAGE RIGIDITIES WAGE RIGIDITY WHITE COLLAR WORKERS WORKER WORKER MORALE WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS
spellingShingle	ADVERSE SELECTION AVERAGE WAGE BARGAINING INSTITUTIONS BARGAINING POWER BARGAINING SYSTEM BUSINESS CYCLE CLERKS COLLECTIVE AGREEMENT COLLECTIVE AGREEMENTS COLLECTIVE BARGAINING COLLECTIVE BARGAINING AGREEMENTS COMPANY COMPETITIVE MARKETS DISMISSAL ECONOMIC SHOCKS EFFICIENCY WAGE MODELS EFFICIENCY WAGE THEORIES EFFICIENCY WAGE THEORY EFFICIENCY WAGES EMPLOYEE EMPLOYEE TURNOVER EMPLOYERS EMPLOYMENT CONTRACTS EMPLOYMENT TURNOVER EQUILIBRIUM UNEMPLOYMENT EXISTING WORKFORCE EXPANSIONS EXPLICIT CONTRACTS FIRING FIRM LEVEL FIRM SIZE FIRM SURVEY FIRMS FOREIGN OWNERSHIP HIGH WAGES HIRING HUMAN CAPITAL HUMAN RESOURCES IMPLICIT CONTRACTS INCOME INDUSTRIAL RELATIONS JOB EXPERIENCE JOBS LABOR CONTRACTS LABOR ECONOMICS LABOR FORCE LABOR MARKET LABOR MARKET FLEXIBILITY LABOR MARKET REFORM LABOR MARKET REFORMS LABOR MARKETS LABOR PRODUCTIVITY LABOR REGULATION LABOR RELATIONS LABOR TURNOVER LABOUR LABOUR COST LABOUR COSTS LABOUR FORCE LABOUR MARKET LABOUR MARKET INSTITUTIONS LABOUR MARKET PARTICIPANTS LABOUR MARKET REFORM LABOUR MARKETS LABOUR REGULATION LABOUR REGULATIONS LABOUR RELATIONS LABOUR TURNOVER LABOUR UNIONS LAYOFFS LONG-TERM EMPLOYMENT MONITORING COSTS MOTIVATION NOMINAL WAGES POLITICAL ECONOMY PREVIOUS STUDIES PROBIT REGRESSIONS PRODUCT MARKET PRODUCT MARKET COMPETITION PRODUCTION PROCESS REAL WAGE REAL WAGES RECRUITMENT REMUNERATION RETAIL TRADE RISING UNEMPLOYMENT SKILLED EMPLOYEES SKILLED WORKERS STAFF TEMPORARY WORKERS TOTAL EMPLOYMENT TRADE UNIONS TRAINING COST TRAINING COSTS UNDEREMPLOYMENT UNEMPLOYMENT UNEMPLOYMENT INSURANCE UNION DENSITIES UNIONIZATION WAGE BARGAINING WAGE BARGAINING SYSTEMS WAGE BILL WAGE DETERMINATION WAGE DISPERSION WAGE FLEXIBILITY WAGE INCREASE WAGE LEVEL WAGE RIGIDITIES WAGE RIGIDITY WHITE COLLAR WORKERS WORKER WORKER MORALE WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS Du Caju, Philip Kosma, Theodora Lawless, Martina Messina, Julian Room, Tairi Why Firms Avoid Cutting Wages : Survey Evidence from European Firms
geographic_facet	Europe and Central Asia Europe
relation	Policy Research Working Paper;No. 6976
description	Firms very rarely cut nominal wages, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why the firms avoid cutting wages. The paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in Western European (EU-15) countries but were one of the lowest ranked obstacles in the new EU member states in Central and Eastern Europe.
format	Publications & Research :: Policy Research Working Paper
author	Du Caju, Philip Kosma, Theodora Lawless, Martina Messina, Julian Room, Tairi
author_facet	Du Caju, Philip Kosma, Theodora Lawless, Martina Messina, Julian Room, Tairi
author_sort	Du Caju, Philip
title	Why Firms Avoid Cutting Wages : Survey Evidence from European Firms
title_short	Why Firms Avoid Cutting Wages : Survey Evidence from European Firms
title_full	Why Firms Avoid Cutting Wages : Survey Evidence from European Firms
title_fullStr	Why Firms Avoid Cutting Wages : Survey Evidence from European Firms
title_full_unstemmed	Why Firms Avoid Cutting Wages : Survey Evidence from European Firms
title_sort	why firms avoid cutting wages : survey evidence from european firms
publisher	World Bank Group, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2014/07/19878434/firms-avoid-cutting-wages-survey-evidence-european-firms http://hdl.handle.net/10986/19349
_version_	1764443797132935168

Why Firms Avoid Cutting Wages : Survey Evidence from European Firms

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