Why Firms Avoid Cutting Wages, Policy Research Working Paper, luglio 2014, World Bank Group
Firms very rarely cut nominal wages, even in the face of
considerable negative economic shocks. This paper uses a
unique survey of fourteen European countries to ask firms
directly about the incidence of wage cuts and to assess the
relevance of a range of potential reasons for why the firms
avoid cutting wages. The paper examines how firm characteristics
and collective bargaining institutions affect the
relevance of each of the common explanations put forward
for the infrequency of wage cuts. Concerns about the retention
of productive staff and a lowering of morale and effort
were reported as key reasons for downward wage rigidity
across all countries and firm types. Restrictions created
by collective bargaining were found to be an important
consideration for firms in Western European (EU-15)
countries but were one of the lowest ranked obstacles in
the new EU member states in Central and Eastern Europe.
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