Rigid Wages and Flexible Employment ?Contrasting Responses to Firm-Level and Sector-Level Productivity Developments

Catherine Fuss () and Ladislav Wintr

Brussels Economic Review, 2012, vol. 55, issue 3, 241-268

Abstract: We evaluate the elasticity of firms' employment and real average labour compensation to totalfactor productivity (TFP) using firm-level data for Belgium over the period 1997-2005. Ourresults show that the short-run elasticity of average labour compensation and that of labour tofirm-level TFP are positive but relatively low. However, the long-run elasticity of labour ismuch higher than that of average labour compensation, consistent with real wage rigidity.Further, while the elasticity of average labour compensation to firm-level TFP is close to zero,the elasticity with respect to sector-level TFP is substantially higher. Lastly, our results indicatethat adjustment to sector-level TFP occurs through coordinated wage decisions embodied insector-level collective agreements.

Keywords: real labour compensation; employment; Total Factor Productivity; firm level panel data (search for similar items in EconPapers)
JEL-codes: J30 J50 J60 (search for similar items in EconPapers)
Date: 2012
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