Labour Market Adjustment in Europe During the Crisis: Microeconomic Evidence from the Wage Dynamics Network Survey

Abstract

Against the backdrop of continuing adjustment in EU labour markets in response to the Great Recession and the sovereign debt crisis, the European System of Central Banks (ESCB) conducted the third wave of the Wage Dynamics Network (WDN) survey in 2014-15 as a follow-up to the two previous WDN waves carried out in 2007 and 2009. The WDN survey collected information on wagesetting practices at the firm level. This third wave sampled about 25,000 firms in 25 European countries with the aim of assessing how firms adjusted wages and employment in response to the various shocks and labour market reforms that took place in the European Union (EU) during the period 2010-13. This paper summarises the main results of WDN3 by identifying some patterns in firms' adjustments and labour market reforms. It seeks to lay out the main lessons learnt from the survey in terms of both the general response of EU labour markets to the crisis and how these responses varied across the countries that took part in the survey.

Export or Perish: Can Internal Devaluation Create Enough Good Jobs in Southern Europe?

“…The most common response offered is that net employment growth would have been even worse in the absence of the labour market reforms pursued and the downward wage flexibility achieved. This is the argument made by Domenech, Garcia and Ulloa (2016), Izquierdo et al (2017) and Salas (2018) for Spain and by the OECD (2017) for Portugal. There is some evidence from Greece that internal devaluation helped stabilise the labour market by providing a lifeline to small and mediumsized firms which would otherwise have gone under (Pelagidis & Mitsopoulos 2014; see also Izquierdo et al 2017).…”

“…This is the argument made by Domenech, Garcia and Ulloa (2016), Izquierdo et al (2017) and Salas (2018) for Spain and by the OECD (2017) for Portugal. There is some evidence from Greece that internal devaluation helped stabilise the labour market by providing a lifeline to small and mediumsized firms which would otherwise have gone under (Pelagidis & Mitsopoulos 2014; see also Izquierdo et al 2017). It might also be argued that it is simply too soon to tell, and that reforms take time to bear fruits.…”

Shocks and Labour Cost Adjustment: Evidence from a Survey of European Firms

“…This suggests that not only the intensity of the crisis but also other determinants played a role. Izquierdo et al (2017), analysing the group of countries surveyed by the WDN, point to a range of factors determining the heterogeneity of the response of the unemployment rate to GDP changes in the context of Okun's law. These factors also explain the causes of the different paths of wages, employment and hours across countries.…”

“…By contrast, all Southern European countries experienced substantial declines in real wages and employment in 2010-2013, which was, to certain extent, the effect of the introduction of different labour market reforms at the national level. Nonetheless, hours worked only fell significantly in Italy, although the reforms in Portugal and Spain were also aimed at increasing the flexibility of working hours (Izquierdo et al 2017). Perhaps this was due to trade union representation being strongest in Italy, which favoured reducing hours to save jobs.…”

Heterogeneous Effects of Credit Constraints on Smes' Employment: Evidence from the Great Recession

“…A growing literature suggests that credit constraints are detrimental for employment (Bentolila et al, 2018;Berton et al, 2018;Fabiani et al, 2015;Gerlach-Kristen et al 2017;Izquierdo et al, 2017;Linehan et al, 2015 ;Siemer, 2015). Yet, caution is required as: i) adequately controlling for the endogeneity of credit constraints remains challenging, and ii) existing studies do not always rely on direct information to identify whether firms are creditconstrained or not.…”