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How Selective Are Real Wage Cuts? A Micro-Analysis Using Linked Employer-Employee Data
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How Selective Are Real Wage Cuts? A Micro-Analysis Using Linked Employer-Employee Data

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  • Hirsch, Boris

    (Leuphana University Lüneburg)

  • Zwick, Thomas

    (University of Würzburg)

Abstract

Using linked employer-employee panel data for Germany, this paper investigates whether firms implement real wage reductions in a selective manner. In line with insider-outsider and several strands of efficiency wage theory, we find strong evidence for selective wage cuts with high-productivity workers being spared even when controlling for permanent differences in firms' wage policies. In contrast to some recent contributions stressing fairness considerations, we also find that wage cuts increase wage dispersion among peers rather than narrowing it. Notably, the same selectivity pattern shows up when restricting our analysis to firms covered by collective agreements or having a works council.

Suggested Citation

  • Hirsch, Boris & Zwick, Thomas, 2014. "How Selective Are Real Wage Cuts? A Micro-Analysis Using Linked Employer-Employee Data," IZA Discussion Papers 8417, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8417
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    Cited by:

    1. Lukesch, Veronika & Zwick, Thomas, 2021. "Outside options drive wage inequalities in continuing jobs: Evidence from a natural experiment," ZEW Discussion Papers 21-003, ZEW - Leibniz Centre for European Economic Research.
    2. Fei Peng & Sajid Anwar & Lili Kang, 2020. "Job Movement and Real Wage Flexibility in Eastern and Western Parts of Germany," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(4), pages 764-789, October.
    3. Veronika Lukesch & Thomas Zwick, 2024. "Do outside options drive wage inequalities in retained jobs? Evidence from a natural experiment," British Journal of Industrial Relations, London School of Economics, vol. 62(1), pages 127-153, March.
    4. Jari Vainiomäki, 2020. "The development of wage dispersion and wage rigidity in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 1-32, Spring.

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    More about this item

    Keywords

    Germany; selectivity; real wage cuts; real wage rigidity;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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