Tuesday, September 24 at 12:00 in the Cassel Room (A700).

Maria Olsson, Uppsala University.

"Labor Cost Adjustments During the Great Recession".

ABSTRACT:
"This paper quantifies how firms adjust their labor costs in response to a large drop in demand and the short term consequences for their employees. The Great Recession in Sweden provides a clearly defined experiment enabling such a quantification. I use the fact that the recession was heavily concentrated to export dependent firms and sectors to estimate the degree to which firms were able to adjust actual wages and/or employment to the sharp fall in demand. Although the crisis hit during a period of pre-determined three-year long collective wage contracts, wage adjustments are in line with the international evidences on rent sharing. Despite this, the crisis led to a large increase in separation to unemployment, providing evidence that incumbent wage rigidity matters for unemployment fluctuations. Further, I find support of that formality of labor market institutions are important in shaping these adverse effects."