Why Firms Lay Off Workers instead of Cutting Wages: Evidence from Linked Survey-Administrative Data
by Antoine Bertheau, Marianna Kudlyak, Birthe Larsen, Morten Bennedsen
Abstract. We use a large-scale survey of firms to study why firms lay off workers instead of cutting wages. We find that most firms can cut wages but often choose not to. Firms report that lowering wages triggers costs via impact on morale and quits. Most employers agree that wage reduction would not save jobs. Furthermore, firms report that crisis is an opportune time for layoffs because of lower restructuring costs and because layoffs are perceived as fairer. Firms that report such opportunistic layoffs are less likely to cut wages. Finally, wage cuts are not rare in firms experiencing revenue reduction.
Paper in Working Paper series: FRB San Francisco, CEPR, Hoover Institution, IZA, SSRN