Flexible Wages and the Costs of Job Displacement

Arbeitspapier

This paper investigates whether flexible pay increases the wage costs of job displacement. We use quasi-exogenous variation in the timing of job loss due to mass layoffs spanning over an institutional reform that restricted single-employer bargaining, the Belgian Wage Norm in 1996. We find that average earnings losses over a ten-year period after displacement are 10 percentage points larger under flexible pay. Workers displaced from jobs with higher employer-specific wage premiums-service sector and white-collar-benefit the most from restricted single-employer bargaining as their earnings fully converge to non-displaced workers' earnings within three years. We show that the differences in earnings losses across wage-setting systems are not driven by fluctuations in the business cycle. Finally, the wage-setting reform had similar effects on female workers, though it did not narrow the gender gap in pre-layoff wages. Our results suggest that reduced pay flexibility may help displaced workers catch up faster to non-displaced workers' pay premium ladder conditional on re-employment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 14942

Classification and Topics

• Classification: Wirtschaft ; Wage Level and Structure; Wage Differentials ; Trade Unions: Objectives, Structure, and Effects ; Labor Turnover; Vacancies; Layoffs
• Subject: bargaining ; wage flexibility ; job displacement

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fernández Guerrico, Sofia ; Tojerow, Ilan
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/250603
• Last update: 10.03.2025, 11:44 AM CET