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Martina Lawless

21 April 2010
WORKING PAPER SERIES - No. 1181
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Abstract
This paper investigates the wage-setting behaviour of Irish firms. We place particular emphasis on the use of flexible pay components and examine how these allow firms to deal with shocks requiring a reduction in costs without having to cut base wages. The results presented in this paper are based on a survey of Irish firms undertaken as part of the Wage Dynamics Network (WDN), which is a Euro-system research network. Our main findings are that almost two-thirds of firms applied at least some elements of the national wage agreement in place at the time of the survey (Towards 2016). Wage cuts or freezes were reported by a very small percentage of firms but changes in bonuses and other flexible pay components were relatively common if the firm needed to reduce labour costs. When asked about the relevance of different explanations for avoiding cuts in base wages, worker morale and loss of experienced workers were the main concerns. Regulatory or collective bargaining obstacles to wage cuts were the lowest ranked.
JEL Code
J3 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
J4 : Labor and Demographic Economics→Particular Labor Markets
Network
Wage dynamics network
12 November 2009
WORKING PAPER SERIES - No. 1106
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Abstract
Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics.
JEL Code
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
C81 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Microeconomic Data, Data Access
P5 : Economic Systems→Comparative Economic Systems
Network
Wage dynamics network
12 November 2009
WORKING PAPER SERIES - No. 1105
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Abstract
It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We analyse which firm-level and institutional factors are associated with wage rigidity. Our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). We also find that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations.
JEL Code
J30 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→General
J31 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Wage Level and Structure, Wage Differentials
J32 : Labor and Demographic Economics→Wages, Compensation, and Labor Costs→Nonwage Labor Costs and Benefits, Retirement Plans, Private Pensions
C81 : Mathematical and Quantitative Methods→Data Collection and Data Estimation Methodology, Computer Programs→Methodology for Collecting, Estimating, and Organizing Microeconomic Data, Data Access
P5 : Economic Systems→Comparative Economic Systems
Network
Wage dynamics network
9 January 2009
OCCASIONAL PAPER SERIES - No. 100
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Abstract
The first part of this paper provides a brief survey of the recent literature that employs survey data on household finance and consumption. Given the breadth of the topic, it focuses on issues that are particularly relevant for policy, namely: i) wealth effects on consumption, ii) housing prices and household indebtedness, iii) retirement income, consumption and pension reforms, iv) access to credit and credit constraints, v) financial innovation, consumption smoothing and portfolio selection and vi) wealth inequality. The second part uses concrete examples to summarise how results from such surveys feed into policy-making within the central banks that already conduct such surveys.
JEL Code
C42 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Survey Methods
D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
Network
Eurosystem Monetary Transmission Network
26 July 2007
WORKING PAPER SERIES - No. 784
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Abstract
Calvo-style models of nominal rigidities currently provide the dominant paradigm for understanding the linkages between wage and price dynamics. Recent empirical implementations stress the idea that these models link inflation to the behaviour of the labour share of income. Gali, Gertler, and Lopez-Salido (2001) argue that the model explains the combination of declining inflation and labour shares in euro area. In this paper, we show that with realistic parameters, the canonical Calvo-style model cannot explain this outcome. In addition, we show that the model fails very badly in sectoral data. We examine the elements underlying the decline in the labour share in Europe, and conclude that the key factors are related to technological and labour market developments not accounted for in the standard New-Keynesian framework.
JEL Code
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
Network
ECB/CEPR labour market workshop on wage and labour cost dynamics