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Labour cost-cutting strategies microeconomic evidence from survey data

Publication Year 
This article investigates how firms adjust their labour costs in the presence of adverse shocks on labour demand and supply. The information obtained from a survey on a sample of firms show that, besides reducing employment or freezing nominal base wages, firms also make frequent use of other cost-cutting strategies, like freezing or cutting bonus and other monetary or non-monetary benefits, slowing down or freezing the rate at which promotions are filled, or recruiting new employees at wages lower than the wages received by the employees that have left the firm. We show that the use of these different adjustment strategies is affected by workers’ and firms’ attributes, as well as by some indicators of the economic environment in which firms operate. More importantly, we provide evidence that firms with more flexible base wages are less likely to reduce employment, and that such effect may be strengthened by the availability of the above-mentioned alternative labour-cost adjustment margins. It is important to stress that all the results presented in this article stemmed directly from the information collected in the survey and, consequently, they do not have a normative nature.
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Journal (repec) 
Economic Bulletin