Rigid Wages and Contracts: Time- versus State-Dependent Wages in the Netherlands

A. Grajales Olarte, Burak Uras, N. Vellekoop

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Abstract

We study nominal wage rigidity in the Netherlands using administrative data, which has three key features: (1) high-frequency (monthly), (2) high-quality (administrative records), and (3) high coverage (the universe of workers and the universe of firms). We find wage rigidity patterns in the data that are similar to wage behavior documented for other European countries. In particular we find that the hazard function has two spikes, one at 12 months and another one at 24 months and wage changes have time and state dependency components. As a novel and important piece of evidence we also uncover substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract. In particular, contracts featuring flexible hours, such as on-call contracts, exhibit a higher probability of a change in the contract wage compared to fixed hour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts - with relatively more downward adjustments in flexible-hour contract wages in
response to aggregate unemployment.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages54
Volume2019-027
Publication statusPublished - 4 Sep 2019

Publication series

NameCentER Discussion Paper Series
Volume2019-027

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Keywords

  • wage rigidity
  • microdata
  • time dependency
  • state dependency
  • flexible-hour contracts

Cite this

Grajales Olarte, A., Uras, B., & Vellekoop, N. (2019). Rigid Wages and Contracts: Time- versus State-Dependent Wages in the Netherlands. (CentER Discussion Paper Series; Vol. 2019-027). Tilburg: CentER, Center for Economic Research.