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  4. May 2022
  5. Do Bonuses Offset the Allocative Effects of Downward Rigid Base Wages?

Do Bonuses Offset the Allocative Effects of Downward Rigid Base Wages?

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Abstract

We measure the labor market outcomes of employees with downward rigid base wages after an unexpected deflationary shock in Switzerland using a firm survey matched with Social Security register data. The employees that additionally receive downward flexible compensation, such as bonuses, are less likely to lose their job after a deflationary shock than those only receiving a base wage. Only a modest share of employees receives downward flexible compensation, however. Therefore, these compensation schemes do not offset the overall allocative effects of downward rigid base wages.

Citation

Funk, Anne Kathrin, and Daniel Kaufmann. 2022. "Do Bonuses Offset the Allocative Effects of Downward Rigid Base Wages?" AEA Papers and Proceedings, 112: 486-90. DOI: 10.1257/pandp.20221097

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • J31 Wage Level and Structure; Wage Differentials
  • J33 Compensation Packages; Payment Methods