DownwardWageRigidityandJobMobility.PDF

Downward Wage Rigidity and Job Mobility* Thomas Cornelißen and Olaf Hübler** DISCUSSION PAPER NO. 349 October 2006 ISSN: 0949-9962 (Revised version of “Downward wage rigidity and labour mobility”, IZA DP 1523) Abstract Using data from the German Socio-Economic Panel (GSOEP) we study whether being individually affected by downward wage rigidity has an effect on layoffs, quits and intra-firm mobility. Within a structural empirical model we estimate the individual extent of wage rigidity. This is expressed by the wage sweep-up, which measures by how much individual wage growth increases through the effect of downward wage rigidity when compared to a counterfactual labour market with flexible wage setting. We find robust negative effects of wage sweep-up on quits and layoffs and some evidence for a positive association of wage sweep-up and promotion opportunities. This is consistent with a core-periphery view of the labour force, where a core work force is protected from layoffs and wage cuts and at the same time enjoys good promotion opportunities. On the other side a peripheral work force provides a buffer for adjustment and suffers from both flexible wages, more insecure jobs and le ss internal promotion opportunities. KEYWORDS: wage rigidity, wage sweep-up, quits, layoffs, promotions JEL-CLASSIFICATION : J31, J63 *Acknowledgements: We would like to thank Knut Gerlach, Steinar Holden, Friedhelm Pfeiffer, the participants of the final conference of the international wage flexibility project as well as