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

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

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

Old Glory and the G. A. R. : March Song

https://digitalcommons.library.umaine.edu/mmb-vp/4395/thumbnail.jp

How are Firms’ Wages and Prices Linked: Survey Evidence in Europe

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level� and there is a relationship between wage and price rigidity.

The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence

This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks. Overall, more than 11,000 firms participated in the survey. The results are very robust across countries. Firms operate in monopolistically competitive markets, where prices are mostly set following mark-up rules and where price discrimination is a common practice. Our evidence suggests that both time- and state-dependent pricing strategies are applied by firms in the euro area: around one-third of the companies follow mainly time-dependent pricing rules while two-thirds use pricing rules with some element of state-dependence. Although the majority of firms take into account a wide range of information, including past and expected economic developments, about one-third adopts a purely backward-looking behaviour. The pattern of results lends support to the recent wave of estimations of hybrid versions of the New Keynesian Phillips Curve. Price stickiness arises both at the stage when firms review their prices and again when they actually change prices. The most relevant factors underlying price rigidity are customer relationships – as expressed in the theories about explicit and implicit contracts – and thus, are mainly found at the price changing (second) stage of the price adjustment process. Finally, we provide evidence that firms adjust prices asymmetrically in response to shocks, depending on the direction of the adjustment and the source of the shock: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.

The pricing behaviour of firms in the euro area : new survey evidence

This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks. Overall, more than 11,000 firms participated in the survey. The results are very robust across countries. Firms operate in monopolistically competitive markets, where prices are mostly set following mark-up rules and where price discrimination is a common practice. Our evidence suggests that both time- and state-dependent pricing strategies are applied by firms in the euro area: around one-third of the companies follow mainly time-dependent pricing rules while two-thirds use pricing rules with some element of state-dependence. Although the majority of firms take into account a wide range of information, including past and expected economic developments, about one-third adopts a purely backward-looking behaviour. The pattern of results lends support to the recent wave of estimations of hybrid versions of the New Keynesian Phillips Curve. Price stickiness arises both at the stage when firms review their prices and again when they actually change prices. The most relevant factors underlying price rigidity are customer relationships - as expressed in the theories about explicit and implicit contracts - and thus, are mainly found at the price changing (second) stage of the price adjustment process. Finally, we provide evidence that firms adjust prices asymmetrically in response to shocks, depending on the direction of the adjustment and the source of the shock: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.price setting, nominal rigidity, real rigidity, inflation persistence, survey data.