Seminar: Staggered wages, unanticipated shocks and firms adjustments

This paper studies the effect of nominal rigidity in labour markets with centralized bargaining. The source of nominal rigidity that we study is contract staggering, as defined in Taylor (1979). Using a matched employers employees data merged to collective labour agreements, and exploiting a feature of the Dutch labour market to generate plausible exogenous variation in nominal rigidity, we estimate the causal effect of contract staggering on firms’ labour cost adjustments. Our main result is that, contrarily to theoretical macroeconomic models including staggered wages, we find precise zero estimate of the effect of nominal rigidities and we conclude that contract staggering has, on average, no real effect on employment. We show that firms instead are more likely to adjust labour cost on the intensive margin, by cutting bonuses and benefits. Eventually, we show that the effect of nominal rigidity on employment results to be significant only in sectors characterized a degree of nominal rigidity much higher than what is assumed in models, in which firms are also shown to have the strongest labour cost adjustments in general.