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Working Paper
Why Firms Lay Off Workers Instead of Cutting Wages: Evidence from Linked Survey-Administrative Data
We use a novel large-scale survey of firms, implemented in Denmark in 2021 and linked to administrative data, to study why firms lay off workers instead of cutting wages. Our questions on layoffs, wage cuts, and the link between them provide new insights into firms’ strategies for adjusting labor in response to adverse shocks. We find that layoffs are more prevalent than wage cuts, but wage cuts are not rare in firms experiencing revenue reduction and were used by 15% of such firms. Employers are hesitant to cut wages in many instances because they see wage cuts as a poor substitute for ...