Why Firms Avoid Cutting Wages: Survey Evidence from European Firms

Philip Du Caju, Theodora Kosma, Martina Lawless, Julian Messina and Tairi Room

No 03/RT/13, Research Technical Papers from Central Bank of Ireland

Abstract: The rarity with which firms reduce nominal wages has been frequently observed, 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 they avoid cutting wages. 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 euro area countries but were one of the lowest ranked obstacles in non-euro area countries. 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.

Keywords: labour costs; wage rigidity; firm survey; wage cuts; European Union (search for similar items in EconPapers)
JEL-codes: C81 J30 J32 J33 J51 P5 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-eec, nep-hme, nep-hrm, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Why firms avoid cutting wages: survey evidence from European firms (2014)
Working Paper: Why firms avoid cutting wages: survey evidence from European firms (2014)
Working Paper: Why firms avoid cutting wages: survey evidence from European firms (2013)
Working Paper: Why firms avoid cutting wages: Survey evidence from European firms (2013)
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