Skills and wage inequality in Greece: evidence from matched employer-employee data, 1995-2002

This paper examines changes in the Greek wage distribution over 1995-2002 and the role of skills in these changes using a matched employer-employee data set. This data set enables us to account for firm heterogeneity and obtain a more refined picture of the impact of skills. The methodology adopted is the Machado-Mata decomposition technique, which separates the part of wage changes that is due to changes in the job/employer and employee characteristics from the part due to changes in the returns to these characteristics. Our results indicate that the role of skills has been decisive. The skill return effects in combination with the composition effects of tenure, which are arguably responsive to economic developments and market conditions, have had an important contribution to the changes in the Greek wage distribution. On the other hand, the impact of predetermined demographic changes, as those captured by the age and education composition effects, has been relatively milder. JEL Classification: J31quantile regression, Returns to skill, Wage inequality

Skills and wage inequality in Greece: evidence from matched employer-employee data, 1995-2002

This paper examines changes in the Greek wage distribution over 1995-2002 and the role of skills in these changes using a matched employer-employee data set. This data set enables us to account for firm heterogeneity and obtain a more refined picture of the impact of skills. The methodology adopted is the Machado-Mata decomposition technique, which separates the part of wage changes that is due to changes in the job/employer and employee characteristics from the part due to changes in the returns to these characteristics. Our results indicate that the role of skills has been decisive. The skill return effects in combination with the composition effects of tenure, which are arguably responsive to economic developments and market conditions, have had an important contribution to the changes in the Greek wage distribution. On the other hand, the impact of predetermined demographic changes, as those captured by the age and education composition effects, has been relatively milder.Returns to skill; Wage inequality; Quantile regression

Market power, innovative activity and exchange rate pass-through in the euro area

This paper examines exchange rate pass-through in the euro area by accounting for the impact of exchange rate changes on exporting firms’ market power, cost structure and competitiveness. An international oligopoly model where exporting firms simultaneously decide on their pricing and innovation strategies is used as the basis for the econometric analysis. The estimations are carried out on data for manufacturing imports of three large euro area countries (Germany, France, Netherlands) from three major non-euro area import suppliers (US, Japan, UK). The results show that exporting firms’ price and innovation decisions in each source country are jointly determined and that total pass-through to euro area import prices is low. There are also indications that other factors, such as interactions with domestic producers, may be important for the determination of pass-through. Finally, euro area import prices are found to be sticky in local currency in the short run. JEL Classification: E43, E44, E58euro exchange rate, Exchange Rate Pass-Through, innovative activity, market power, multivariate cointegration

Market Power, Innovative Activity and Exchange Rate Pass-Through

This paper considers an international oligopoly where firms simultaneously choose both the amount of output produced and the proportion of R&D investment to output. The model captures the links between the exchange rate, market power, innovative activity and price, which are important for the determination of the optimal degree of exchange rate pass-through. It is found that in the long run the pass-through elasticity can be less than, equal to or greater than one depending on R&D effectiveness but in any case it is higher than in models that do not endogenise innovation decisions. The empirical implications of the model are tested using data for Japanese firms exporting to the US market and applying the Johansen multivariate cointegration technique. Particular attention is given to the estimation and identification of the equilibrium price and R&D-intensity equations. The empirical results indicate that price-setting and R&D-intensity decisions of firms are jointly determined in the long run. This interdependence must be taken into account if an accurate estimate of the exchange rate pass-through is to be obtained.Exchange rate pass-through; market power; innovative activity; multivariate cointegration

Market Conduct, Price Interdependence and Exchange Rate Pass-Through

This paper develops an international oligopoly model where foreign and domestic firms simultaneously choose their pricing strategies under the assumption of non-zero conjectural variations. The model captures the links between domestic and foreign producers’ prices and establishes a relationship between the price of domestically produced goods and the exchange rate, which appears to be important for the determination of exchange rate pass-through. It is also found that the equilibrium pass-through elasticity can be less than, equal to or greater than one depending on exporting and domestic firms’ conjectural variations. The empirical implications of the model are tested with the Johansen multivariate cointegration technique using data for Japanese firms’ exports to the US market. The results indicate that US producer prices are indeed influenced by the prices of their Japanese competitors and that the pass-through elasticity is less than one.Money demand; Exchange rate pass-through; Conjectural variations; Translog expenditure function; Multivariate cointegration

The Margins of Labour Cost Adjustment: Survey Evidence from European Firms

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that European firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics.European Union, firm survey, labour costs, wage rigidity.

The Margins of Labour Cost Adjustment: Survey Evidence from European Firms

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics. JEL Classification: J30, C81, P5European Union, firm survey, labour costs, wage rigidity

Downward nominal and real wage rigidity : survey evidence from European firms

It has been well established that the wages of individual workers react little, especially downwards, to shocks that hit their employer. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. The authors analyse which firm-level and institutional factors are associated with wage rigidity. The results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). The analysis also finds that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations.Labor Policies,Environmental Economics&Policies,Labor Markets,Income,Markets and Market Access

The margins of labour cost adjustment: survey evidence from european firms

Firms have multiple options at the time of adjusting their wage bills. However, previous literature has mainly focused on base wages. We broaden the analysis beyond downward rigidity in base wages by investigating the use of other margins of labour cost adjustment at the firm level. Using data from a unique survey, we find that firms make frequent use of other, more flexible, components of compensation to adjust the cost of labour. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by firm and worker characteristics.labour costs; wage rigidity; firm survey; European Union

Downward Nominal and Real Wage Rigidity:Survey Evidence from European Firms

It has been well established that the wages of individual workers are only marginally affected, particularly downwards, by shocks to their firms. This paper presents new evidence from a unique survey of firms across Europe on the prevalence of downward wage rigidity in both real and nominal terms. We analyse which firm-level and institutional factors are associated with wage rigidity. Our results indicate that downward wage rigidity is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models (e.g. efficiency wage theory, insider-outsider theory). We also find that wage rigidity depends on the labour market institutional environment. Collective bargaining coverage is positively related with downward real wage rigidity, measured on the basis of wage indexation. Downward nominal wage rigidity is positively associated with the presence of permanent contracts and this effect is stronger in countries with stricter employment protection regulations.