Flexible Wages or Flexible Workers? A Decomposition of Wage Bill Adjustment by Dutch Firms, 2006–2013

This paper investigates how firms adjust wages and employment in periods of adverse economic circumstances, using extensive, administrative linked employer/employee panel data for the Netherlands. Changes in the contractual wage bills of firms are decomposed into wages and job flows, distinguishing stayers and workers entering and exiting the firm.

Employment reduction is found to be the major channel for wage-bill contraction by firms, indicating downward wage rigidity. A negative relationship is established between fi rms' degree of downward wage rigidity and their employment growth, suggesting that job losses in response to adverse shocks would be signi cantly lower if wages were more downwardly flexible.


Author(s) A. Deelen
Language English
Year of publication Aug, 2019
Publisher CPB Netherlands Bureau for Economic Policy Analysis, The Hague
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