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...
| Main Authors: | , , , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Subjects: | |
| 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 |
| Summary: | 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. |
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