DP7706 Price, Wage and Employment Response to Shocks: Evidence from the WDN Survey

Author(s): Giuseppe Bertola, Aurelijus Dabusinskas, Marco Hoeberichts, Mario Izquierdo, Claudia Kwapil, Jérémi Montornes, Daniel Radowski
Publication Date: February 2010
Keyword(s): European Union, Labour-market institutions, Survey data, Wage bargaining
JEL(s): J31, J38, P50
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7706

This paper analyses information from survey data collected in the framework of the Eurosystem’s Wage Dynamics Network (WDN) on patterns of firm-level adjustment to shocks. We document that the relative intensity and the character of price vs. cost and wage vs. employment adjustments in response to cost-push shocks depend - in theoretically sensible ways - on the intensity of competition in firms’ product markets, on the importance of collective wage bargaining and on other structural and institutional features of firms and of their environment. Focusing on the pass-through of cost shocks to prices, our results suggest that the pass-through is lower in highly competitive firms. Furthermore, a high degree of employment protection and collective wage agreements tend to make this pass-through stronger.