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

Institutional features of wage bargaining in 23 European countries, the US and Japan.

This paper presents information on wage bargaining institutions, collected using a standardised questionnaire. Our data provide information from 1995 and 2006, for four sectors of activity and the aggregate economy, considering 23 European countries, plus the US and Japan. Main findings include a high degree of regulation in wage setting in most countries. Although union membership is low in many countries, union coverage is high and almost all countries also have some form of national minimum wage. Most countries negotiate wages on several levels, the sectoral level still being the most dominant, with an increasingly important role for bargaining at the firm level. The average length of collective bargaining agreements is found to lie between one and three years. Most agreements are strongly driven by developments in prices and eleven countries have some form of indexation mechanism which affects wages. Cluster analysis identifies three country groupings of wage-setting institutions.Wage Bargaining ; Institutions ; Indexation ; Trade Union Membership, Cluster Analysis

Lessons of the Wage Dynamics Network

The Wage Dynamics Network (WDN) is a temporary research network with the main objective of identifying the characteristics of wage dynamics and drawing conclusions from them in monetary policy terms. The paper presents the main findings of this research work. Notably, the intersectoral wage differential can be partly attributed to differences in profitability and the degree of competition to which the sectors are exposed. Nominal wages are adjusted less frequently than prices and adjustments generally tend to be made at regular intervals rather than in response to the economic climate. Wage rigidity not only affects existing workers, but also new recruits. The euro area, and Belgium in particular, is marked more by rigid real wages than nominal wages. Real wage rigidity implies a low optimal inflation rate and tends to complicate the conduct of monetary policy since it triggers greater fluctuations in output and employment and makes inflation more persistent. Furthermore, in a monetary union, countries with higher real wage rigidity suffer a loss of competitiveness in the event of negative productivity shocks. Institutions underlying wagesetting generally play an important role in the way in which firms and economies react to shocks. The heterogeneity of these institutions within the euro area therefore presents a real challenge for monetary policy.firms’ behavior, wage rigidity, employment, monetary policy, labour market flexibility, labour market institutions, economic shocks