Wage rigidities and business cycle fluctuations: a linked employer-employee analysis

Abstract

This paper analyses wage dynamics in Italy in the last 25 years with a special focus on the recent recession. Despite the rather rigid Italian institutional setting, using linked employer-employee data we find that wage rigidities, albeit always present, have been subdued during the recessionary years. Using complementary data, we verify that, although we only observe daily and not hourly wages, overtime hours are not the main mechanism behind this enhanced wage flexibility. We document the presence of a trade-off between wage and employment adjustments: firms historically displaying higher levels of wage rigidities were less able to modify wages but exhibited higher turnover. A higher share of temporary workers, whose contractual relationship may be costlessly terminated and whose wages are therefore more frequently negotiated, served instead as a significant wage flexibility enhancing margin. More broadly, we find that firms of larger dimension, with a higher share of blue collar workers, or belonging to a sector where bonuses represent a large part of annual earnings were the ones displaying a higher level of wage flexibility.JEL Classification: J31, J33

Workforce Aging, Pension Reforms, and Firm Outcomes

“…29 We also replicated these findings using contractual instead of gross wages, and find similar results. 30 Increases in employment coupled with no or small wage reductions can be rationalized by the fact that, in the Italian institutional setting, wages tend to be rigid in the short run due to the importance of collectively bargained national contracts setting wages for three years in advance (see Adamopoulou et al (2016)); moreover, should an increase in employment for any of the three age classes imply an increase in their wages in the whole economy, we would still fail to see them, given the fact that our identification strategy is based on variation across firms and can only spot differential changes in wages at the firm level. Nevertheless, 28 The Full Time Equivalent wage is obtained as the ratio between the sum of wage payments received in a given employment spell in a given year and the related days worked for full time workers; for part time workers the days worked are made equivalent to the full time ones by dividing by the full to part time hours.…”

The impact of heat waves on food industry productivity: Firm‐level evidence from Italy

“…Further analysis suggests that the principal mechanism contributing to the reduction of the TFP is the decrease in labour productivity. Indeed, we observe firms coping with the heat stress by increasing labour expenses that, considering the rigidity of salaries in Italy (Adamopoulou et al, 2016;Devicienti et al, 2007), we interpret as an increase in the number of employees or hours worked. However, the change in output is not proportional to the change in labour costs; therefore, the ratio between turnover and labour expenses decreases.…”

GENERATION DISPARITIES ON THE PERCEPTION OF SMEs BUSINESS RISKS

“…It is important to develop positive interpersonal relationships between individuals working at different levels in the organization (Alnoor, 2020). When employees cooperated with others to create social-interpersonal relationships, this confirmed the needs of employee association (Afsar & Badir, 2016) and belonging (Adamopoulou et al, 2016). Theories of social exchange and reciprocity explain how managers and co-workers' behavior determine the quality of these relationships (Deckop et al, 2003) and influence employee judgment (Redmond & Sharafizad, 2020).…”