Wage Structure, Employment and Efficiency was presented by Balázs REIZER at the Royal Economic Society 2019 Annual Conference.
I document new facts about the relationship between flexible wages and firm performance using a unique matched employer-employee database from Hungary. Firms providing flexible wage contracts are larger, more productive, and they have less volatile revenue. Though these firms adjust total wage compensation more to revenue shocks, there are no differences in their employment responses compared to firms without flexible wages. These findings hold during the Great Recession after 2008, and corroborated by instrumenting revenue. These results suggest that flexible wages do not save jobs, and can be explained by incorporating incentive contracting into a wage posting model.