Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ?

This paper reports the results of an ad hoc survey on price-setting behaviour conducted in February 2004 among 2,000 Belgian firms. The reported results clearly deviate from a situation of perfect competition and show that firms have some market power. Pricing-to-market is applied by a majority of industrial firms. Prices are rather sticky. The average duration between two consecutive price reviews is 10 months, whereas it amounts to 13 months between two consecutive price changes. Most firms adopt time-dependent price-reviewing under normal circumstances. However, when specific events occur, the majority will adopt a state-dependent behaviour. Evidence is found in favour of both nominal (mainly implicit and explicit contracts) and real rigidities (including flat marginal costs and counter-cyclical movements in desired mark-ups). The survey results point to a non-negligible degree of non-optimal price-setting.price-setting behaviour, price rigidity, nominal rigidity, real rigidity, survey, time-dependent pricing, state-dependent pricing, pricing-to-market

Wages, labor or prices: How do firms react to shocks? National Bank of Belgium Working Paper, No. 193, July 2010

Survey results in 15 European countries for almost 15,000 firms reveal that Belgian firms react more than the average European firm to adverse shocks by reducing permanent and temporary employment. On the basis of a firm-level analysis, this paper confirms that the different reaction to shocks is significant and investigates what factors explain this difference. Although the explanatory value of the variables is limited, most of the explanatory power of the model being associated with the dummy variables coding for firm size, sector and country, the variables investigated provide valuable information. The importance of wage bargaining above the firm level, the automatic system of index-linking wages to past inflation, the limited use of flexible pay, the high share of low-skilled blue-collar workers, the labor intensive production process as well as the less stringent legislation with respect to the protection against dismissal are at the basis of the stronger employment reaction of Belgian firms. On the contrary, employment is safeguarded by the presence of many small firms and a wage cushion

Price-setting behaviour in Belgium : what can be learned from an ad hoc survey ?

The article reports the results of an ad hoc survey on price-setting behaviour conducted in February 2004 among 2,000 Belgian firms. The reported results clearly deviate from a situation of perfect competition and show that firms have some market power. Pricing-to-market is applied by a majority of industrial firms. Prices are rather sticky. The average duration between two consecutive price reviews is 10 months, whereas it amounts to 13 months between two consecutive price changes. This evidence is consistent with the fact that both the price-reviewing process and the act of changing a price entail specific costs. Most firms adopt time-dependent price-reviewing under normal circumstances. However, when specific events occur, the majority will adopt a state-dependent behaviour. Evidence is found in favour of both nominal (mainly implicit and explicit contracts) and real rigidities (including fl at marginal costs and counter-cyclical movements in desired mark-ups), in line with the recent macro-literature where the interplay between both types of rigidity is emphasised. The survey results point to a non-negligible degree of non-optimal price-setting, suggesting that informational frictions could also be a source of sluggishness in the inflation process.price-setting behaviour, price rigidity, real rigidity, survey, time-dependent pricing, pricing-to-market

Wages, labor or prices: how do firms react to shocks?

Survey results in 15 European countries for almost 15,000 firms reveal that Belgian firms react more than the average European firm to adverse shocks by reducing permanent and temporary employment. On the basis of a firm-level analysis, this paper confirms that the different reaction to shocks is significant and investigates what factors explain this difference. Although the explanatory value of the variables is limited, most of the explanatory power of the model being associated with the dummy variables coding for firm size, sector and country, the variables investigated provide valuable information. The importance of wage bargaining above the firm level, the automatic system of index-linking wages to past inflation, the limited use of flexible pay, the high share of low-skilled blue-collar workers, the labor intensive production process as well as the less stringent legislation with respect to the protection against dismissal are at the basis of the stronger employment reaction of Belgian firms. On the contrary, employment is safeguarded by the presence of many small firms and a wage cushion. JEL Classification: D21, E30, J31Cost-push shocks, demand shock, indexation, survey, wage bargaining institutions, wage rigidity

Price-setting behaviour in Belgium: what can be learned from an ad hoc survey?

This paper reports the results of an ad hoc survey on price-setting behaviour conducted in February 2004 among 2,000 Belgian firms. The reported results clearly deviate from a situation of perfect competition and show that firms have some market power. Pricing-to-market is applied by a majority of industrial firms. Prices are rather sticky. The average duration between two consecutive price reviews is 10 months, whereas it amounts to 13 months between two consecutive price changes. Most firms adopt time-dependent price reviewing under normal circumstances. However, when specific events occur, the majority will adopt a state-dependent behaviour. Evidence is found in favour of both nominal (mainly implicit and explicit contracts) and real rigidities (including flat marginal costs and counter-cyclical movements in desired mark-ups). The survey results point to a non-negligible degree of non-optimal price-setting. JEL Classification: D40, E31, L11nominal rigidity, price rigidity, price-setting behaviour, pricing-to-market, real rigidity, state-dependent pricing, survey, timedependent pricing

Wages, labor or prices : How do firms react to shocks ?

Survey results in 15 European countries for almost 15,000 firms reveal that Belgian firms react more than the average European firm to adverse shocks by reducing permanent and temporary employment. On the basis of a firm-level analysis, this paper confirms that the different reaction to shocks is significant and investigates what factors explain this difference. Although the explanatory value of the variables is limited, most of the explanatory power of the model being associated with the dummy variables coding for firm size, sector and country, the variables investigated provide valuable information. The importance of wage bargaining above the firm level, the automatic system of index-linking wages to past inflation, the limited use of flexible pay, the high share of low-skilled blue-collar workers, the labor intensive production process as well as the less stringent legislation with respect to the protection against dismissal are at the basis of the stronger employment reaction of Belgian firms. On the contrary, employment is safeguarded by the presence of many small firms and a wage cushionsurvey, wage rigidity, cost-push shocks, demand shock, wage bargaining institutions, indexation

Working time and forms of employment in Belgium

The article discusses developments over the past two decades in regard to working time and alternative forms of employment, placing the trends seen in Belgium in an international perspective. It also examines whether the Belgian regulations on this subject are stricter than those in the other EU-15 countries. For the Belgian working population, the usual working time averaged 37 hours per week in 2004, whereas in 1983 it was a little over 40 hours. There are wide variations within the EU-15. Belgian working time is somewhat shorter than the average for the EU-15, and that also applies to employees. The average working time ascertained for the various countries is influenced by the employment structure. After adjustments for that factor, the differences are definitely smaller, and working time in Belgium is roughly the same as the EU-15 average. The decline in average working time and the increased dispersion which have emerged over the years are inevitably connected with the growing use of part-time working and other alternative forms of employment such as temporary work, employment during non-standard hours, overtime working, variable working hours and home working. In many cases this satisfies a genuine preference on the part of the persons concerned, e.g. those seeking a better balance between work and family life. However, since these forms of employment are more common among risk groups such as women, older workers, the young and the low-skilled, there is a danger of further segmentation of the labour market. On the demand side of the labour market, the alternative forms of employment give employers a range of instruments which are conducive to a flexible production process.working time, part-time employment, temporary work, overtime, flexibility

The Belgian labour market during and after the crisis

The article looks at the impact that the 2008-2009 recession had on the Belgian labour market and, whilst taking account of the varying severity and duration of the economic downturn, draws a comparison with other European countries. More specifically, the consequences are investigated with regard to the adaptation of volume of labour and labour costs, and also the composition of employment. The analysis for Belgium shows that the crisis was accompanied by a less than proportional contraction in the volume of labour, resulting in a fall in labour productivity. The reduction in the volume of labour was only partly reflected in the trend in employment as the use of measures aimed at limiting working time, with a considerable fall in the number of hours worked per employee as a result, was accompanied by considerable labour hoarding. In general terms, the crisis did not result in a fall in the activity rate, but there is a major risk of discouragement among low-skilled young people. The increase in long-term unemployment points in turn to the threat of a rise in structural unemployment, which may adversely affect the potential for growth in the economy. The crisis did not have a moderating effect on the trend in hourly labour costs. After allowing for the productivity trend, the labour cost handicap, expressed in unit labour costs, narrowed temporarily with respect to the three neighbouring countries, but an increase in this handicap was once again posted in 2010.labour hoarding, long-term unemployment, labour productivity, labour cost handicap, hysteresis

Results of the Bank’s survey of wage-setting in Belgian firms

The analysis presented is the outcome of a survey conducted by the Bank and forming the Belgian component of an initiative launched by the Wage Dynamics Network (WDN), in order to accompany the empirical analysis based on individual employees’ wage data obtained, for instance, from administrative data banks. The survey contains questions on the wage-setting process, the existence of downward rigidity and the reasons for it, the reaction of firms to shocks, and the frequency and timing of wage and price adjustments. The survey reveals that almost all firms in Belgium are covered by a sector agreement, and just over a quarter apply an additional collective wage agreement at the firm level. Such firm-level collective agreements are more common in large firms. The results also show that just over half of firms apply a wage indexation mechanism with a threshold index, while just under half operate in an environment where indexation takes place at fixed intervals. The latter system is more common in large firms, so that the weighted results indicate that this mechanism applies to the majority of employees. The level of wages of new employees depends mainly on what is specified in collective agreements and on the wage level of comparable employees in the firm. However, the wages which the firm actually pays to its staff may deviate from the pay scales specified in the sectoral agreements. In a significant number of firms, especially for white-collar workers and skilled staff, actual wages paid exceed the sectoral pay scales. Such a wage cushion, forming a buffer between the actual wages and the collectively agreed lower limits, is more common in large firms. Overall, firms seldom respond to adverse shocks by cutting basic wages or using alternative ways of reducing labour costs per employee. Certainly in large firms, costs are reduced mainly via the employment channel, i.e. by reducing the number of primarily permanent staff, and to a lesser extent temporary workers. Reductions in non-wage costs are also important, while variable pay components are only cut in a small number of cases. Only a quarter of firms state that they adjust their prices more than once a year. Time-dependent price adjustments, in which the time of the adjustment does not depend on economic conditions (as opposed to state-dependent adjustments), occur in 22 p.c. of firms and are noticeably common in the business service sector. Combined with the low frequency of price adjustments, this indicates price rigidity in that sector. The frequency and timing of wage adjustments are closely linked to the indexation mechanism applied. Most firms adjust their wages no more than once a year. Time-dependent wage adjustments in a specific month apply to 61 p.c. of firms, and – like price adjustments – wage adjustments are concentrated in the month of January. Another peak occurs in July, and there is some concentration at the beginning of the second and fourth quarters, particularly in the case of wage adjustments.Survey, wages, prices, employment