Abstract
We explore the impact of wage adjustment on employment with a focus on the role of downward nominal wage rigidities. We use a harmonised survey dataset, which covers 25 European countries in the period 2010–2013. These data are particularly useful for this paper given the firm-level information on the change in economic conditions and collective pay agreements. Our findings confirm the presence of wage rigidities in Europe: first, collective pay agreements reduce the probability of downward wage adjustment; second, wage responses to demand developments are asymmetric with a weaker downward response. Estimation results show that a wage reduction significantly lowers the probability of a decrease in employment at the firm level when demand falls and thereby point to a negative effect of downward wage rigidities on employment at the firm level.
Appendix
Descriptive statistics
Firm characteristics.
| Full estimation sample | Only firms with negative demand shock… | …and collective pay agreement | |
|---|---|---|---|
| Number of observations | 15,324 | 6746 | 3970 |
| Sector | |||
| Manufacturing | 28% | 26% | 26% |
| Electricity, gas, water | 1% | 0.3% | 0.3% |
| Construction | 6% | 9% | 8% |
| Trade | 22% | 27% | 26% |
| Business services | 39% | 36% | 37% |
| Financial intermediation | 2% | 2% | 2% |
| Arts | 1% | 1% | 0.1% |
| Ownership at the end of 2013 | |||
| Mainly domestic | 79% | 81% | 79% |
| Mainly foreign | 21% | 19% | 21% |
| Size | |||
| less than 19 employees | 17% | 20% | 15% |
| 20–49 employees | 16% | 17% | 15% |
| 50–199 employees | 27% | 27% | 29% |
| 200 employees and + | 40% | 36% | 41% |
| Payroll composition at the end of 2013 | |||
| Lower skilled | 43% | 45% | 46% |
| Higher skilled | 57% | 54% | 53% |
| Job tenure >5 years | 59% | 63% | 65% |
| Permanent contracts | 90% | 90% | 90% |
| Temporary contracts | 10% | 9% | 9% |
| Agency | 1% | 1% | 0.2% |
-
Figures are employment weighted.
Evolution of base wages in firms that have a collective pay agreement in effect by country; full estimation sample.
| Strong decrease | Moderate decrease | Unchanged | Moderate increase | Strong increase | |
|---|---|---|---|---|---|
| Austria | 0.1% | 0.8% | 6.1% | 73.0% | 20.1% |
| Belgium | 0.2% | 0.3% | 3.6% | 87.0% | 8.9% |
| Bulgaria | 0.4% | 6.1% | 40.6% | 53.0% | 0.0% |
| Cyprusa | 0.0% | 100.0% | 0.0% | 0.0% | 0.0% |
| Czech Republic | 0.0% | 8.1% | 26.8% | 63.7% | 1.5% |
| Germany | 0.0% | 3.3% | 9.3% | 74.9% | 12.5% |
| Estonia | 0.0% | 0.0% | 12.5% | 42.4% | 45.1% |
| Spain | 2.1% | 4.9% | 39.4% | 52.2% | 1.4% |
| France | 0.2% | 1.9% | 15.4% | 75.8% | 6.7% |
| Greecea | 29.5% | 65.2% | 2.7% | 2.7% | 0.0% |
| Croatia | 1.8% | 18.4% | 33.7% | 45.2% | 0.9% |
| Hungary | 0.3% | 2.9% | 41.8% | 53.4% | 1.7% |
| Italy | 0.0% | 5.7% | 15.3% | 71.0% | 8.0% |
| Lithuania | 0.4% | 11.5% | 16.4% | 67.1% | 4.6% |
| Luxembourg | 0.2% | 1.4% | 18.5% | 56.1% | 23.8% |
| Latvia | 0.0% | 6.4% | 52.2% | 40.0% | 1.5% |
| Malta | 0.0% | 3.8% | 10.1% | 83.8% | 2.3% |
| Netherlands | 1.1% | 8.9% | 40.4% | 47.8% | 1.8% |
| Poland | 0.0% | 1.0% | 15.7% | 79.0% | 4.3% |
| Portugal | 2.0% | 6.0% | 47.2% | 44.5% | 0.3% |
| Romania | 0.7% | 3.7% | 16.9% | 76.2% | 2.5% |
| Slovenia | 2.0% | 14.7% | 46.5% | 36.3% | 0.5% |
| Slovakia | 0.0% | 2.5% | 9.3% | 85.4% | 2.9% |
| United Kingdoma | 0.0% | 0.0% | 0.0% | 100.0% | 0.0% |
| Total | 0.8% | 4.3% | 23.9% | 65.8% | 5.3% |
-
Figures are employment weighted. aThere are only few observations of firms with a collective pay agreement in effect for Cyprus, Greece and the UK.
Evolution of base wages in firms that have no collective pay agreement in effect by country; full estimation sample.
| Strong decrease | Moderate decrease | Unchanged | Moderate increase | Strong increase | |
|---|---|---|---|---|---|
| Austriaa | 0.0% | 0.6% | 12.2% | 60.7% | 26.5% |
| Belgium | 0.2% | 0.8% | 14.4% | 76.9% | 7.7% |
| Bulgaria | 1.7% | 16.6% | 16.7% | 61.1% | 3.9% |
| Cyprus | 14.3% | 45.0% | 18.4% | 22.2% | 0.0% |
| Czech Republic | 0.5% | 9.1% | 41.7% | 45.2% | 3.4% |
| Germany | 0.4% | 2.5% | 17.3% | 72.2% | 7.5% |
| Estonia | 2.0% | 3.1% | 13.4% | 74.2% | 7.3% |
| Spain | 3.9% | 3.9% | 37.0% | 55.2% | 0.0% |
| France | 1.2% | 2.5% | 18.4% | 66.7% | 11.2% |
| Greece | 31.3% | 21.9% | 30.2% | 16.6% | 0.0% |
| Croatia | 8.5% | 17.7% | 41.7% | 30.3% | 1.8% |
| Hungary | 0.2% | 4.2% | 49.5% | 44.4% | 1.6% |
| Italya | 0.0% | 6.2% | 55.2% | 38.6% | 0.0% |
| Lithuania | 3.4% | 4.1% | 22.7% | 63.4% | 6.4% |
| Luxembourg | 0.6% | 3.4% | 14.2% | 71.2% | 10.6% |
| Latvia | 4.3% | 4.5% | 20.5% | 56.6% | 14.1% |
| Malta | 0.0% | 0.0% | 14.6% | 77.8% | 7.7% |
| Netherlands | 0.7% | 5.3% | 34.0% | 48.5% | 11.6% |
| Poland | 1.3% | 6.3% | 24.4% | 63.6% | 4.4% |
| Portugal | 1.2% | 10.5% | 48.7% | 38.4% | 1.3% |
| Romania | 0.8% | 6.4% | 23.1% | 68.7% | 1.0% |
| Slovenia | 3.9% | 12.0% | 53.3% | 29.7% | 1.1% |
| Slovakia | 0.6% | 5.1% | 22.0% | 70.3% | 2.0% |
| United Kingdom | 0.0% | 2.1% | 11.7% | 81.7% | 4.6% |
| Total | 1.0% | 4.5% | 22.3% | 66.5% | 5.7% |
-
Figures are employment weighted. aThere are only few observations of firms with no collective pay agreement in effect for Austria and Italy.
Evolution of employment in firms that have a collective pay agreement in effect by country; full estimation sample.
| Strong decrease | Moderate decrease | Unchanged | Moderate increase | Strong increase | |
|---|---|---|---|---|---|
| Austria | 0.3% | 18.4% | 23.5% | 39.9% | 17.9% |
| Belgium | 3.6% | 25.5% | 25.6% | 32.5% | 12.8% |
| Bulgaria | 5.4% | 15.3% | 55.7% | 23.6% | 0.0% |
| Cyprusa | 0.0% | 100.0% | 0.0% | 0.0% | 0.0% |
| Czech Republic | 3.9% | 50.1% | 18.7% | 23.1% | 4.2% |
| Germany | 3.5% | 12.2% | 63.6% | 19.0% | 1.6% |
| Estonia | 4.8% | 4.7% | 57.3% | 28.3% | 4.8% |
| Spain | 6.3% | 24.2% | 34.5% | 29.9% | 5.2% |
| France | 7.9% | 23.8% | 35.9% | 23.7% | 8.7% |
| Greecea | 27.9% | 53.3% | 4.3% | 14.5% | 0.0% |
| Croatia | 7.0% | 45.3% | 15.2% | 21.7% | 10.9% |
| Hungary | 1.3% | 25.9% | 52.4% | 19.2% | 1.2% |
| Italy | 17.5% | 23.0% | 24.3% | 32.0% | 3.2% |
| Lithuania | 1.5% | 30.7% | 41.8% | 25.5% | 0.6% |
| Luxembourg | 7.2% | 32.0% | 26.2% | 31.3% | 3.3% |
| Latvia | 20.7% | 22.5% | 12.1% | 44.7% | 0.0% |
| Malta | 1.6% | 39.0% | 10.6% | 44.9% | 3.9% |
| Netherlands | 11.1% | 44.3% | 32.0% | 10.8% | 1.8% |
| Poland | 0.0% | 36.1% | 32.8% | 29.7% | 1.5% |
| Portugal | 6.8% | 24.8% | 35.4% | 30.4% | 2.6% |
| Romania | 4.9% | 23.6% | 23.4% | 42.3% | 5.8% |
| Slovenia | 5.7% | 31.7% | 32.2% | 27.7% | 2.8% |
| Slovakia | 3.4% | 61.8% | 12.3% | 17.0% | 5.4% |
| United Kingdoma | 0.0% | 0.0% | 85.4% | 0.0% | 14.6% |
| Total | 7.6% | 25.8% | 34.3% | 26.2% | 5.9% |
-
Figures are employment weighted. aThere are only few observations of firms with a collective pay agreement in effect for Cyprus, Greece and the UK.
Evolution of employment in firms that have no collective pay agreement in effect by country; full estimation sample.
| Strong decrease | Moderate decrease | Unchanged | Moderate increase | Strong increase | |
|---|---|---|---|---|---|
| Austriaa | 0.0% | 28.7% | 16.2% | 44.7% | 10.3% |
| Belgium | 4.3% | 25.6% | 25.4% | 30.2% | 14.5% |
| Bulgaria | 7.0% | 19.7% | 57.7% | 14.7% | 0.9% |
| Cyprus | 12.5% | 47.0% | 22.6% | 17.9% | 0.0% |
| Czech Republic | 4.4% | 19.8% | 29.4% | 40.0% | 6.4% |
| Germany | 0.8% | 7.2% | 61.0% | 27.1% | 3.9% |
| Estonia | 1.1% | 10.3% | 40.7% | 42.7% | 5.1% |
| Spain | 6.9% | 34.1% | 46.8% | 10.5% | 1.8% |
| France | 3.9% | 21.5% | 38.9% | 26.4% | 9.3% |
| Greece | 26.6% | 21.8% | 16.9% | 17.0% | 17.7% |
| Croatia | 10.8% | 22.5% | 30.4% | 30.3% | 6.1% |
| Hungary | 2.2% | 9.9% | 75.4% | 11.2% | 1.3% |
| Italya | 0.0% | 24.3% | 41.8% | 33.9% | 0.0% |
| Lithuania | 4.5% | 13.8% | 44.1% | 31.2% | 6.4% |
| Luxembourg | 3.0% | 12.2% | 29.4% | 40.9% | 14.5% |
| Latvia | 4.9% | 8.8% | 35.0% | 31.3% | 20.0% |
| Malta | 2.0% | 11.6% | 30.7% | 46.3% | 9.3% |
| Netherlands | 9.4% | 25.6% | 48.5% | 12.3% | 4.2% |
| Poland | 2.7% | 17.6% | 37.5% | 38.1% | 4.2% |
| Portugal | 5.6% | 18.8% | 40.9% | 29.1% | 5.7% |
| Romania | 3.1% | 21.9% | 21.9% | 46.7% | 6.4% |
| Slovenia | 5.6% | 17.0% | 34.4% | 36.5% | 6.4% |
| Slovakia | 13.0% | 18.2% | 32.7% | 32.6% | 3.6% |
| United Kingdom | 3.3% | 15.9% | 24.6% | 41.9% | 14.4% |
| Total | 3.5% | 14.9% | 43.9% | 31.0% | 6.8% |
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Figures are employment weighted. aThere are only few observations of firms with no collective pay agreement in effect for Austria and Italy.
Robustness of the Ordered Probit estimation of wage responses
Ordered probit estimation of wage responses to a change in the level of demand; only firms that indicate that they did not need to significantly reduce the labour input or alter its composition.
| Marginal effects on the probability of observing the outcome |
|||
|---|---|---|---|
| (1) | (2) | (3) | |
| Variables | Base wages decrease | Base wages unchanged | Base wages increase |
| Collective pay agreementa | −0.015*** | −0.042*** | 0.058*** |
| (0.003) | (0.008) | (0.012) | |
| Demand | |||
| Decrease | 0.012*** | 0.029*** | −0.041*** |
| (0.003) | (0.008) | (0.011) | |
| Unchanged (reference) | |||
| Increase | −0.033*** | −0.128*** | 0.161*** |
| (0.002) | (0.008) | (0.010) | |
| Negative shocks: | |||
| Finance | 0.016*** | 0.041*** | −0.057*** |
| (0.003) | (0.008) | (0.011) | |
| Customers | 0.003 | 0.008 | −0.010 |
| (0.002) | (0.007) | (0.009) | |
| Supplies | 0.005 | 0.013 | −0.018 |
| (0.004) | (0.009) | (0.013) | |
| Observations | 10,903 | ||
| p-Value | 0.000 | ||
| Pseudo R-squared | 0.138 | ||
-
Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered.
-
Firm size, sector and country dummies included. Marginal effect for indicator variables is the discrete change from the base level.
Ordered probit estimation of wage responses; only firms with negative demand shock.
| Marginal effects on the probability of observing the outcome |
|||
|---|---|---|---|
| Variables | (1) | (2) | (3) |
| Base wages decrease | Base wages unchanged | Base wages increase | |
| Collective pay agreementa | −0.028*** | −0.022*** | 0.050*** |
| (0.009) | (0.007) | (0.015) | |
| Strong demand shock | 0.044*** | 0.031*** | −0.075*** |
| (0.007) | (0.004) | (0.011) | |
| Negative shocks: | |||
| Finance | 0.037*** | 0.029*** | −0.066*** |
| (0.007) | (0.005) | (0.011) | |
| Customers | 0.016** | 0.013** | −0.029** |
| (0.006) | (0.005) | (0.012) | |
| Supplies | 0.009 | 0.007 | −0.017 |
| (0.007) | (0.005) | (0.012) | |
| Observations | 6746 | ||
| p-Value | 0.000 | ||
| Pseudo R-squared | 0.097 | ||
-
Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered.
-
Firm size, sector and country dummies included. Marginal effect for indicator variables is the discrete change from the base level.
Ordered probit estimation of wage responses; only firms with unchanged level of demand.
| Marginal effects on the probability of observing the outcome |
|||
|---|---|---|---|
| Variables | (1) | (2) | (3) |
| Base wages decrease | Base wages unchanged | Base wages increase | |
| Collective pay agreementa | −0.024*** | −0.090*** | 0.114*** |
| (0.005) | (0.017) | (0.021) | |
| Negative shocks: | |||
| Finance | 0.019*** | 0.060*** | −0.078*** |
| (0.006) | (0.017) | (0.024) | |
| Customers | −0.004 | −0.016 | 0.020 |
| (0.004) | (0.015) | (0.018) | |
| Supplies | 0.001 | 0.005 | −0.007 |
| (0.007) | (0.024) | (0.030) | |
| Observations | 3637 | ||
| p-Value | 0.000 | ||
| Pseudo R-squared | 0.095 | ||
-
Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered.
-
Firm size, sector and country dummies included. Marginal effect for indicator variables is the discrete change from the base level.
Ordered probit estimation of wage responses; only firms with positive demand shock.
| Marginal effects on the probability of observing the outcome |
|||
|---|---|---|---|
| Variables | (1) | (2) | (3) |
| Base wages decrease | Base wages unchanged | Base wages increase | |
| Collective pay agreementa | −0.004 | −0.015 | 0.018 |
| (0.003) | (0.013) | (0.016) | |
| Strong demand shock | −0.010*** | −0.041*** | 0.051*** |
| (0.003) | (0.012) | (0.014) | |
| Negative shocks: | |||
| Finance | 0.012*** | 0.042*** | −0.054*** |
| (0.004) | (0.014) | (0.018) | |
| Customers | 0.000 | 0.001 | −0.002 |
| (0.003) | (0.010) | (0.013) | |
| Supplies | 0.007 | 0.025 | −0.032 |
| (0.005) | (0.017) | (0.023) | |
| Observations | 4941 | ||
| p-Value | 0.000 | ||
| Pseudo R-squared | 0.095 | ||
-
Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered.
-
Firm size, sector and country dummies included. Marginal effect for indicator variables is the discrete change from the base level.
Robustness of the IV Ordered Probit estimation
IV ordered probit estimation; only firms with negative demand shock and with collective pay agreement.
| Marginal effects on the probability of observing the outcome |
|||
|---|---|---|---|
| Wage equation | (1) | (2) | (3) |
| Variables | Base wages decrease | Base wages unchanged | Base wages increase |
| Frequency of changea | −0.023*** | −0.021*** | 0.044*** |
| (0.006) | (0.005) | (0.011) | |
| Strong demand shock | 0.031*** | 0.028*** | −0.058*** |
| (0.007) | (0.006) | (0.014) | |
| Negative shocks: | |||
| Finance | 0.017** | 0.017** | −0.034** |
| (0.008) | (0.008) | (0.015) | |
| Customers | 0.010 | 0.010 | −0.019 |
| (0.007) | (0.007) | (0.014) | |
| Supplies | 0.008 | 0.008 | −0.016 |
| (0.008) | (0.007) | (0.016) | |
| Foreign ownership | −0.018* | −0.019 | 0.037* |
| (0.010) | (0.012) | (0.022) | |
| Bonuses | −0.012 | −0.012 | 0.024 |
| (0.008) | (0.007) | (0.015) | |
| Labour cost share | −0.013 | −0.012 | 0.025 |
| (0.017) | (0.016) | (0.033) | |
| Firing costs | −0.016** | −0.014** | 0.030** |
| (0.007) | (0.006) | (0.013) | |
| Credit constraintb | 0.031*** | 0.029*** | −0.060*** |
| (0.008) | (0.007) | (0.015) | |
|
|
|||
| Employment equation | (1) | (2) | (3) |
| Variables | Employment Decrease | Employment Unchanged | Employment Increase |
|
|
|||
| Base wages: | |||
| Decrease | −0.212*** | −0.065*** | 0.277*** |
| (0.014) | (0.015) | (0.028) | |
| Unchanged (reference) | |||
| Increase | 0.314*** | −0.085*** | −0.229*** |
| (0.023) | (0.004) | (0.023) | |
| Strong demand shock | 0.152*** | −0.036*** | −0.116*** |
| (0.014) | (0.006) | (0.010) | |
| Negative shocks: | |||
| Finance | 0.029** | −0.006* | −0.023** |
| (0.014) | (0.003) | (0.012) | |
| Customers | 0.010 | −0.002 | −0.008 |
| (0.014) | (0.003) | (0.011) | |
| Supplies | 0.027* | −0.006* | −0.021* |
| (0.015) | (0.003) | (0.012) | |
| Foreign ownership | −0.031 | 0.006* | 0.025 |
| (0.020) | (0.003) | (0.017) | |
| Bonuses | −0.025* | 0.005* | 0.020* |
| (0.014) | (0.003) | (0.011) | |
| Labour cost share | 0.041 | −0.008 | −0.033 |
| (0.031) | (0.006) | (0.025) | |
| Firing costs | −0.025* | 0.005* | 0.020* |
| (0.013) | (0.003) | (0.010) | |
| Credit constraintb | 0.050*** | −0.010*** | −0.040*** |
| (0.014) | (0.003) | (0.011) | |
| Observations | 3970 | ||
| p-Value | 0.000 | ||
| Rho | 0.819*** | ||
-
Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1.
-
adummy variable which equals one if the collective pay agreement at the firm is typically changed every 2 years or more frequently; b debt refinancing.
-
Firm size, sector and country dummies included. The IV ordered probit model was estimated using the Stata command cmp written by Roodman (2011). Marginal effect for indicator variables is the discrete change from the base level.
IV ordered probit estimation; only firms with negative demand shock.
| Coefficients |
||||||||
|---|---|---|---|---|---|---|---|---|
| Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) |
| Empl. | Wage | Empl. | Wage | Empl. | Wage | Empl. | Wage | |
| Collective pay agreementa | 0.149*** | 0.151*** | 0.151*** | 0.153*** | ||||
| (0.032) | (0.032) | (0.032) | (0.041) | |||||
| Base wages: | ||||||||
| Decrease | 0.650*** | 0.647*** | 0.653*** | 0.612*** | ||||
| (0.051) | (0.054) | (0.054) | (0.064) | |||||
| Unchanged (reference) | ||||||||
| Increase | −0.872*** | −0.868*** | −0.865*** | −0.841*** | ||||
| (0.042) | (0.045) | (0.046) | (0.055) | |||||
| Strong demand shock | −0.487*** | −0.263*** | −0.456*** | −0.222*** | −0.445*** | −0.211*** | −0.422*** | −0.193*** |
| (0.030) | (0.031) | (0.031) | (0.031) | (0.031) | (0.032) | (0.031) | (0.032) | |
| Negative shocks: | ||||||||
| Finance | −0.132*** | −0.179*** | −0.091*** | −0.144*** | −0.108*** | −0.153*** | ||
| (0.030) | (0.032) | (0.032) | (0.034) | (0.032) | (0.034) | |||
| Customers | −0.023 | −0.063** | −0.021 | −0.067** | −0.001 | −0.055* | ||
| (0.030) | (0.032) | (0.030) | (0.032) | (0.030) | (0.032) | |||
| Supplies | −0.074** | −0.036 | −0.063* | −0.027 | −0.063* | −0.033 | ||
| (0.033) | (0.035) | (0.034) | (0.036) | (0.034) | (0.036) | |||
| Foreign ownership | 0.055 | 0.087* | 0.057 | 0.108** | ||||
| (0.043) | (0.046) | (0.044) | (0.047) | |||||
| Bonuses | 0.102*** | 0.127*** | 0.102*** | 0.138*** | ||||
| (0.030) | (0.033) | (0.030) | (0.033) | |||||
| Labour cost share | −0.185*** | −0.008 | −0.195*** | −0.010 | ||||
| (0.069) | (0.073) | (0.069) | (0.073) | |||||
| Firing costs | 0.028 | 0.078** | 0.018 | 0.071** | ||||
| (0.029) | (0.030) | (0.029) | (0.030) | |||||
| Credit constraintb | −0.129*** | −0.118*** | −0.154*** | −0.133*** | ||||
| (0.031) | (0.033) | (0.031) | (0.033) | |||||
| Share of workers: | ||||||||
| Permanent contract | −0.143* | 0.017 | ||||||
| (0.083) | (0.089) | |||||||
| Tenure >5 years | −0.604*** | −0.249*** | ||||||
| (0.052) | (0.054) | |||||||
| Higher skilled | 0.006 | −0.055 | ||||||
| (0.042) | (0.044) | |||||||
| Manual | 0.174*** | 0.289*** | ||||||
| (0.046) | (0.048) | |||||||
| cut_1 | −1.171*** | −2.342*** | −1.221*** | −2.425*** | −1.238*** | −2.356*** | −1.698*** | −2.404*** |
| (0.123) | (0.160) | (0.125) | (0.162) | (0.128) | (0.166) | (0.153) | (0.190) | |
| cut_2 | −0.302** | −1.029*** | −0.345** | −1.103*** | −0.357*** | −1.029*** | −0.770*** | −1.068*** |
| (0.131) | (0.159) | (0.134) | (0.160) | (0.137) | (0.165) | (0.159) | (0.188) | |
| Rho | 0.846*** | 0.841*** | 0.839*** | 0.817*** | ||||
| Observations | 6746 | 6746 | 6746 | 6746 | ||||
-
Robust standard errors in parentheses.
-
*** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered; bdebt refinancing.
-
Firm size, sector and country dummies included. Cut_1 and cut_2 denote threshold parameters of the ordered probit model. The IV ordered probit model was estimated using the Stata command cmp (Roodman 2011).
IV ordered probit estimation; only firms with negative demand shock and any collective agreement in effect.
| Coefficients |
||||||||
|---|---|---|---|---|---|---|---|---|
| Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) |
| Empl. | Wage | Empl. | Wage | Empl. | Wage | Empl. | Wage | |
| Frequency of changea | 0.130*** | 0.128*** | 0.128*** | 0.132*** | ||||
| (0.031) | (0.032) | (0.032) | (0.034) | |||||
| Base wages: | ||||||||
| Decrease | 0.754*** | 0.757*** | 0.758*** | 0.720*** | ||||
| (0.074) | (0.076) | (0.078) | (0.097) | |||||
| Unchanged (reference) | ||||||||
| Increase | −0.869*** | −0.870*** | −0.862*** | −0.824*** | ||||
| (0.064) | (0.067) | (0.070) | (0.091) | |||||
| Strong demand shock | −0.480*** | −0.228*** | −0.446*** | −0.186*** | −0.437*** | −0.173*** | −0.416*** | −0.154*** |
| (0.038) | (0.040) | (0.039) | (0.041) | (0.040) | (0.041) | (0.041) | (0.041) | |
| Negative shocks: | ||||||||
| Finance | −0.132*** | −0.162*** | −0.083** | −0.100** | −0.104** | −0.111** | ||
| (0.039) | (0.041) | (0.042) | (0.045) | (0.042) | (0.045) | |||
| Customers | −0.034 | −0.059 | −0.029 | −0.057 | 0.002 | −0.038 | ||
| (0.039) | (0.042) | (0.039) | (0.042) | (0.040) | (0.043) | |||
| Supplies | −0.089** | −0.062 | −0.077* | −0.047 | −0.075* | −0.053 | ||
| (0.043) | (0.046) | (0.043) | (0.046) | (0.044) | (0.047) | |||
| Foreign ownership | 0.089 | 0.110* | 0.092 | 0.129** | ||||
| (0.058) | (0.064) | (0.059) | (0.065) | |||||
| Bonuses | 0.073* | 0.071 | 0.069* | 0.080* | ||||
| (0.040) | (0.044) | (0.041) | (0.045) | |||||
| Labour cost share | −0.117 | 0.073 | −0.115 | 0.076 | ||||
| (0.090) | (0.097) | (0.092) | (0.097) | |||||
| Firing costs | 0.072* | 0.089** | 0.058 | 0.082** | ||||
| (0.037) | (0.040) | (0.038) | (0.040) | |||||
| Credit constraintb | −0.145*** | −0.177*** | −0.169*** | −0.188*** | ||||
| (0.041) | (0.044) | (0.042) | (0.044) | |||||
| Share of workers: | ||||||||
| Permanent contract | −0.161 | −0.019 | ||||||
| (0.111) | (0.124) | |||||||
| Tenure >5 years | −0.670*** | −0.241*** | ||||||
| (0.074) | (0.075) | |||||||
| Higher skilled | −0.018 | −0.049 | ||||||
| (0.057) | (0.060) | |||||||
| Manual | 0.221*** | 0.301*** | ||||||
| (0.065) | (0.068) | |||||||
| cut_1 | −1.238*** | −2.583*** | −1.298*** | −2.667*** | −1.280*** | −2.575*** | −1.767*** | −2.621*** |
| (0.138) | (0.179) | (0.141) | (0.182) | (0.146) | (0.188) | (0.182) | (0.227) | |
| cut_2 | −0.392*** | −1.137*** | −0.447*** | −1.211*** | −0.422*** | −1.110*** | −0.857*** | −1.145*** |
| (0.152) | (0.176) | (0.155) | (0.178) | (0.160) | (0.184) | (0.195) | (0.223) | |
| Rho | 0.827*** | 0.824*** | 0.819*** | 0.790*** | ||||
| Observations | 3970 | 3970 | 3970 | 3970 | ||||
-
Robust standard errors in parentheses.
-
*** p < 0.01, ** p < 0.05, * p < 0.1.
-
adummy variable which equals one if the collective pay agreement at the firm is typically changed every 2 years or more frequently; bdebt refinancing
-
Firm size, sector and country dummies included. Cut_1 and cut_2 denote threshold parameters of the ordered probit model. The IV ordered probit model was estimated using the Stata command cmp (Roodman 2011).
Separate ordered probit estimation of employment and wages; only firms with negative demand shock.
| Coefficients |
||||||||
|---|---|---|---|---|---|---|---|---|
| Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) |
| Empl. | Wage | Empl. | Wage | Empl. | Wage | Empl. | Wage | |
| Collective pay agreementa | 0.142*** | 0.144*** | 0.143*** | 0.125*** | ||||
| (0.044) | (0.043) | (0.044) | (0.044) | |||||
| Strong demand shock | −0.517*** | −0.260*** | −0.499*** | −0.214*** | −0.489*** | −0.202*** | −0.460*** | −0.186*** |
| (0.032) | (0.031) | (0.032) | (0.032) | (0.032) | (0.032) | (0.033) | (0.032) | |
| Negative shocks: | ||||||||
| Finance | −0.073** | −0.187*** | −0.036 | −0.153*** | −0.060* | −0.159*** | ||
| (0.032) | (0.032) | (0.034) | (0.034) | (0.034) | (0.034) | |||
| Customers | 0.018 | −0.081** | 0.023 | −0.086*** | 0.039 | −0.071** | ||
| (0.031) | (0.033) | (0.032) | (0.033) | (0.032) | (0.033) | |||
| Supplies | −0.071** | −0.048 | −0.062* | −0.040 | −0.057 | −0.048 | ||
| (0.035) | (0.036) | (0.036) | (0.036) | (0.036) | (0.036) | |||
| Foreign ownership | 0.028 | 0.087* | 0.018 | 0.110** | ||||
| (0.047) | (0.047) | (0.047) | (0.048) | |||||
| Bonuses | 0.063** | 0.132*** | 0.057* | 0.144*** | ||||
| (0.031) | (0.034) | (0.032) | (0.034) | |||||
| Labour cost share | −0.258*** | −0.001 | −0.266*** | −0.002 | ||||
| (0.072) | (0.074) | (0.072) | (0.074) | |||||
| Firing costs | −0.019 | 0.085*** | −0.025 | 0.077** | ||||
| (0.030) | (0.031) | (0.031) | (0.031) | |||||
| Credit constraintb | −0.104*** | −0.118*** | −0.129*** | −0.132*** | ||||
| (0.033) | (0.033) | (0.033) | (0.033) | |||||
| Share of workers: | ||||||||
| Permanent contract | −0.207** | 0.013 | ||||||
| (0.088) | (0.090) | |||||||
| Tenure >5 years | −0.697*** | −0.195*** | ||||||
| (0.052) | (0.054) | |||||||
| Higher skilled | 0.042 | −0.062 | ||||||
| (0.044) | (0.045) | |||||||
| Manual | 0.046 | 0.315*** | ||||||
| (0.048) | (0.049) | |||||||
| Cut_1 | −0.527*** | −2.386*** | −0.550*** | −2.484*** | −0.623*** | −2.413*** | −1.287*** | −2.407*** |
| (0.131) | (0.175) | (0.132) | (0.176) | (0.135) | (0.180) | (0.161) | (0.201) | |
| Cut_2 | 0.688*** | −1.071*** | 0.666*** | −1.160*** | 0.596*** | −1.083*** | −0.039 | −1.069*** |
| (0.131) | (0.173) | (0.132) | (0.174) | (0.135) | (0.178) | (0.161) | (0.199) | |
| Observations | 6746 | 6746 | 6746 | 6746 | 6746 | 6746 | 6746 | 6746 |
-
Robust standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1; ashare of workers covered; bdebt refinancing.
-
Firm size, sector and country dummies included. Cut_1 and cut_2 denote threshold parameters of the ordered probit model.
Separate ordered probit estimation of employment and wages; only firms with negative demand shock and any collective agreement in effect.
| Coefficients |
||||||||
|---|---|---|---|---|---|---|---|---|
| Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) |
| Empl. | Wage | Empl. | Wage | Empl. | Wage | Empl. | Wage | |
| Frequency of changea | 0.180*** | 0.176*** | 0.172*** | 0.180*** | ||||
| (0.040) | (0.040) | (0.040) | (0.040) | |||||
| Strong demand shock | −0.526*** | −0.215*** | −0.504*** | −0.170*** | −0.498*** | −0.157*** | −0.470*** | −0.140*** |
| (0.040) | (0.040) | (0.041) | (0.042) | (0.041) | (0.042) | (0.041) | (0.042) | |
| Negative shocks: | ||||||||
| Finance | −0.078* | −0.173*** | −0.049 | −0.113** | −0.073 | −0.122*** | ||
| (0.041) | (0.042) | (0.044) | (0.046) | (0.045) | (0.046) | |||
| Customers | −0.001 | −0.072* | 0.006 | −0.072* | 0.031 | −0.048 | ||
| (0.042) | (0.044) | (0.042) | (0.044) | (0.042) | (0.044) | |||
| Supplies | −0.089** | −0.058 | −0.082* | −0.047 | −0.073 | −0.057 | ||
| (0.045) | (0.046) | (0.046) | (0.046) | (0.046) | (0.047) | |||
| Foreign ownership | 0.065 | 0.115* | 0.058 | 0.136** | ||||
| (0.064) | (0.066) | (0.064) | (0.067) | |||||
| Bonuses | 0.052 | 0.075* | 0.042 | 0.083* | ||||
| (0.043) | (0.045) | (0.043) | (0.045) | |||||
| Labour cost share | −0.234** | 0.121 | −0.217** | 0.118 | ||||
| (0.095) | (0.098) | (0.096) | (0.099) | |||||
| Firing costs | 0.036 | 0.101** | 0.023 | 0.093** | ||||
| (0.039) | (0.041) | (0.040) | (0.041) | |||||
| Credit constraintb | −0.087** | −0.171*** | −0.115*** | −0.181*** | ||||
| (0.044) | (0.044) | (0.044) | (0.044) | |||||
| Share of workers: | ||||||||
| Permanent contract | −0.202* | 0.005 | ||||||
| (0.118) | (0.126) | |||||||
| Tenure >5 years | −0.776*** | −0.196*** | ||||||
| (0.073) | (0.075) | |||||||
| Higher skilled | 0.008 | −0.064 | ||||||
| (0.059) | (0.061) | |||||||
| Manual | 0.116* | 0.332*** | ||||||
| (0.066) | (0.068) | |||||||
| Cut_1 | −0.557*** | −2.551*** | −0.592*** | −2.645*** | −0.644*** | −2.538*** | −1.322*** | −2.513*** |
| (0.139) | (0.194) | (0.140) | (0.197) | (0.145) | (0.202) | (0.187) | (0.237) | |
| Cut_2 | 0.588*** | −1.101*** | 0.555*** | −1.187*** | 0.505*** | −1.072*** | −0.141 | −1.037*** |
| (0.139) | (0.191) | (0.140) | (0.193) | (0.145) | (0.198) | (0.186) | (0.234) | |
| Observations | 3970 | 3970 | 3970 | 3970 | 3970 | 3970 | 3970 | 3970 |
-
Robust standard errors in parentheses.
-
*** p < 0.01, ** p < 0.05, * p < 0.1.
-
adummy variable which equals one if the collective pay agreement at the firm is typically changed every 2 years or more frequently; bdebt refinancing.
-
Firm size, sector and country dummies included. Cut_1 and cut_2 denote threshold parameters of the ordered probit model.
IV ordered probit estimation, total sample.
| Marginal effects on the probability of observing the outcome |
|||
|---|---|---|---|
| Wage equation | (1) | (2) | (3) |
| Variables | Base wages decrease | Base wages unchanged | Base wages increase |
| Collective pay agreementa | −0.023*** | −0.037*** | 0.060*** |
| (0.003) | (0.004) | (0.007) | |
| Demand | |||
| Decrease | 0.031*** | 0.044*** | −0.075*** |
| (0.004) | (0.006) | (0.009) | |
| Unchanged (reference) | |||
| Increase | −0.044*** | −0.111*** | 0.155*** |
| (0.003) | (0.007) | (0.009) | |
| Negative shocks: | |||
| Finance | 0.021*** | 0.032*** | −0.053*** |
| (0.004) | (0.005) | (0.009) | |
| Customers | 0.005* | 0.008* | −0.013* |
| (0.003) | (0.005) | (0.008) | |
| Supplies | 0.008** | 0.012** | −0.020** |
| (0.004) | (0.006) | (0.010) | |
| Foreign ownership | −0.017*** | −0.029*** | 0.046*** |
| (0.003) | (0.006) | (0.009) | |
| Bonuses | −0.018*** | −0.027*** | 0.045*** |
| (0.003) | (0.004) | (0.007) | |
| Labour cost share | −0.005 | −0.008 | 0.014 |
| (0.006) | (0.010) | (0.016) | |
| Firing costs | −0.008*** | −0.012*** | 0.020*** |
| (0.003) | (0.004) | (0.007) | |
| Credit constraintb | 0.013*** | 0.020*** | −0.033*** |
| (0.003) | (0.005) | (0.008) | |
|
|
|||
| Employment equation | (1) | (2) | (3) |
| Variables | Employment Decrease | Employment Unchanged | Employment Increase |
|
|
|||
| Base wages: | |||
| Decrease | −0.116*** | −0.092*** | 0.207*** |
| (0.005) | (0.005) | (0.010) | |
| Unchanged (reference) | |||
| Increase | 0.266*** | 0.022*** | −0.288*** |
| (0.008) | (0.002) | (0.008) | |
| Demand | |||
| Decrease | 0.154*** | −0.014*** | −0.140*** |
| (0.008) | (0.001) | (0.008) | |
| Unchanged (reference) | |||
| Increase | −0.160*** | −0.053*** | 0.213*** |
| (0.007) | (0.003) | (0.008) | |
| Negative shocks: | |||
| Finance | 0.042*** | 0.002*** | −0.044*** |
| (0.008) | (0.000) | (0.008) | |
| Customers | 0.013** | 0.001** | −0.014** |
| (0.006) | (0.000) | (0.007) | |
| Supplies | 0.037*** | 0.002*** | −0.039*** |
| (0.009) | (0.000) | (0.009) | |
| Foreign ownership | −0.026*** | −0.003*** | 0.029*** |
| (0.008) | (0.001) | (0.008) | |
| Bonuses | −0.043*** | −0.003*** | 0.045*** |
| (0.006) | (0.000) | (0.006) | |
| Labour cost share | 0.015 | 0.001 | −0.017 |
| (0.013) | (0.001) | (0.015) | |
| Firing costs | −0.001 | −0.000 | 0.001 |
| (0.006) | (0.000) | (0.006) | |
| Credit constraintb | 0.035*** | 0.002*** | −0.037*** |
| (0.007) | (0.000) | (0.007) | |
| Observations | 15,324 | ||
| p-Value | 0.000 | ||
| Rho | 0.861*** | ||
-
Robust standard errors in parentheses.
-
*** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered; bdebt refinancing.
-
Firm size, sector and country dummies included. The IV ordered probit model was estimated using the Stata command cmp (Roodman 2011). Marginal effect for indicator variables is the discrete change from the base level.
IV ordered probit estimation; different subsamples.
| Coefficients |
||||||||
|---|---|---|---|---|---|---|---|---|
| Instrument: | (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) |
| Collective pay agreementa |
Frequency of changeb |
|||||||
| Subsample: | Unchanged demand | Increase in demand | Unchanged demand and collective pay agreement in effect | Increase in demand and collective pay agreement in effect | ||||
|
|
||||||||
| Variables | Empl. | Wage | Empl. | Wage | Empl. | Wage | Empl. | Wage |
| Instrument | 0.336*** | 0.139** | 0.110** | 0.151** | ||||
| (0.045) | (0.055) | (0.052) | (0.061) | |||||
| Base wages: | ||||||||
| Decrease | 0.782*** | 0.125 | 0.750*** | 0.302 | ||||
| (0.088) | (0.207) | (0.140) | (0.294) | |||||
| Unchanged (reference) | ||||||||
| Increase | −1.033*** | −0.509*** | −0.947*** | −0.638** | ||||
| (0.042) | (0.188) | (0.090) | (0.253) | |||||
| Strong demand shock | 0.440*** | 0.190*** | 0.428*** | 0.198** | ||||
| (0.050) | (0.060) | (0.076) | (0.093) | |||||
| Negative shocks: | ||||||||
| Finance | −0.139** | −0.158** | −0.125** | −0.173*** | −0.082 | −0.208** | −0.088 | −0.178** |
| (0.061) | (0.068) | (0.057) | (0.062) | (0.084) | (0.096) | (0.082) | (0.086) | |
| Customers | −0.001 | 0.078 | −0.014 | −0.009 | −0.005 | 0.057 | −0.034 | 0.061 |
| (0.047) | (0.052) | (0.043) | (0.049) | (0.065) | (0.074) | (0.061) | (0.068) | |
| Supplies | −0.131* | −0.023 | −0.196*** | −0.118 | −0.135 | −0.099 | −0.226** | −0.095 |
| (0.076) | (0.086) | (0.068) | (0.080) | (0.108) | (0.118) | (0.091) | (0.104) | |
| Foreign ownership | 0.137*** | 0.235*** | 0.066 | 0.143*** | 0.103 | 0.320*** | 0.006 | 0.018 |
| (0.053) | (0.059) | (0.046) | (0.054) | (0.077) | (0.092) | (0.067) | (0.085) | |
| Bonuses | 0.151*** | 0.115** | 0.147*** | 0.121** | 0.179*** | 0.196** | 0.093 | 0.073 |
| (0.040) | (0.045) | (0.042) | (0.050) | (0.069) | (0.078) | (0.063) | (0.076) | |
| Labour cost share | −0.120 | −0.011 | 0.241*** | 0.158 | −0.125 | 0.013 | 0.339** | 0.320** |
| (0.091) | (0.101) | (0.086) | (0.103) | (0.138) | (0.160) | (0.132) | (0.157) | |
| Firing costs | 0.020 | 0.041 | −0.045 | 0.077* | 0.002 | 0.049 | 0.014 | 0.061 |
| (0.044) | (0.048) | (0.039) | (0.044) | (0.063) | (0.070) | (0.056) | (0.062) | |
| Credit constraintc | −0.054 | −0.117** | −0.100** | −0.071 | −0.047 | −0.114 | −0.172*** | −0.085 |
| (0.048) | (0.053) | (0.043) | (0.051) | (0.072) | (0.081) | (0.063) | (0.073) | |
| Cut_1 | −1.833*** | −2.907*** | −1.500*** | −2.330*** | −1.689*** | −2.960*** | −1.523*** | −2.357*** |
| (0.140) | (0.229) | (0.164) | (0.198) | (0.168) | (0.255) | (0.205) | (0.231) | |
| Cut_2 | −0.690*** | −1.218*** | −0.447** | −1.055*** | −0.689*** | −1.240*** | −0.656** | −1.035*** |
| (0.147) | (0.223) | (0.213) | (0.192) | (0.189) | (0.236) | (0.281) | (0.219) | |
| Rho | 0.891*** | 0.630*** | 0.874*** | 0.707*** | ||||
| Observations | 3637 | 4941 | 1595 | 2270 | ||||
-
Robust standard errors in parentheses.
-
*** p < 0.01, ** p < 0.05, * p < 0.1.
-
ashare of workers covered; bdummy variable which equals one if the collective pay agreement at the firm is typically changed every 2 years or more frequently; cdebt refinancing.
-
Firm size, sector and country dummies included. Cut_1 and cut_2 denote threshold parameters of the ordered probit model. The IV ordered probit model was estimated using the Stata command cmp (Roodman 2011).
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Article note
We are grateful to Andreja Pufnik for help in compiling the literature. We are particularly grateful for the very useful comments – which helped to improve the paper – from an anonymous referee who reviewed the paper for the B.E. Journal of Macroeconomics. We also thank Jan Marcus, an anonymous referee of the ECB Working Paper Series, WDN participants and seminar participants at Bundesbank (April 2016), the ECB (June 2016), the Eurosystem’s Working Group on Forecasting meeting in Frankfurt (September 2016), Eesti Pank (September 2016), the AMSE-Banque de France Labour Market Conference (December 2016), and the EALE conference (September 2018) for their helpful comments. The paper represents the authors’ personal opinions and does not necessarily reflect the views of the institutions with which they are affiliated.
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