This paper investigates how firms adjust to demand shocks when wages and employment determination are regulated. Using firm-level data for the Italian metal engineering industry for the 2009-2015 period, we estimate the elasticity of the wage bill and, separately wage and employment margins, to changes in firm’s real sales. We disentangle the effect on different wage components (base wage and wage cushion) and labour inputs (permanent or temporary employment and working hours). Results show that resilience of the wage bill to demand shocks mainly works through the adjustment of working hours (especially via short-time work), while wage and employment margins are less sensitive. Industrial relations significantly influence the firm’s adjustment process: strong unions reduce the sensitivity of employment adjustment, conversely firm-level collective agreements show higher sensitivity via the wage cushion components. We discuss the implications of rent sharing for firm’s profitability.

Lucifora, Claudio, Origo, Federica, (2022). Rigid yet resilient: Firms’ margins of adjustment to demand shocks in regulated labour markets 10). Bergamo: Retrieved from http://hdl.handle.net/10446/211413

Rigid yet resilient: Firms’ margins of adjustment to demand shocks in regulated labour markets

Origo, Federica
2022-03-11

Abstract

This paper investigates how firms adjust to demand shocks when wages and employment determination are regulated. Using firm-level data for the Italian metal engineering industry for the 2009-2015 period, we estimate the elasticity of the wage bill and, separately wage and employment margins, to changes in firm’s real sales. We disentangle the effect on different wage components (base wage and wage cushion) and labour inputs (permanent or temporary employment and working hours). Results show that resilience of the wage bill to demand shocks mainly works through the adjustment of working hours (especially via short-time work), while wage and employment margins are less sensitive. Industrial relations significantly influence the firm’s adjustment process: strong unions reduce the sensitivity of employment adjustment, conversely firm-level collective agreements show higher sensitivity via the wage cushion components. We discuss the implications of rent sharing for firm’s profitability.
Lucifora, Claudio; Origo, Federica
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10446/211413
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