Do Bonuses Offset the Allocative Effects of Downward Rigid Base Wages?

Abstract

We measure the labor market outcomes of employees with downward rigid base wages after an unexpected deflationary shock in Switzerland using a firm survey matched with Social Security register data. The employees that additionally receive downward flexible compensation, such as bonuses, are less likely to lose their job after a deflationary shock than those only receiving a base wage. Only a modest share of employees receives downward flexible compensation, however. Therefore, these compensation schemes do not offset the overall allocative effects of downward rigid base wages.

Do Sticky Wages Matter? New Evidence from Matched Firm Survey and Register Data

“…2019). We show in a separate paper that downward flexible wage components, such as bonuses, do not fully offset the allocative effects of downward rigid base wages (see Funk and Kaufmann 2022).…”