Does Automatic Wage Indexation Destroy Jobs? A Machine Learning Approach
Bijnens G. Karimov S. Konings J.
March 2023Springer
Economist (Netherlands)
2023#171Issue 185 - 117 pp.
This paper analyzes the impact of automatic wage indexation on employment. To boost competitiveness and increase employment, Belgium suspended its automatic wage indexation system in 2015. This resulted in a 2% fall in real wages for all workers. In the absence of a suitable control group, we use machine learning for the counterfactual analysis. We artificially construct the control group for a difference-in-difference analysis based on the pre-treatment evolution of treated firms. We find a positive impact on employment of 1.2%, which corresponds to a labor demand elasticity of − 0.6. This effect is more pronounced for manufacturing firms, where the elasticity reaches − 1. These results show that a suspension of the automatic wage indexation mechanism can be effective in preserving employment.
Counterfactual analysis , Labor demand , Machine learning , Wage elasticity
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National Bank of Belgium, de Berlaimontlaan 14, Brussels, 1000, Belgium
Amazon UK Services Ltd., 1 Principal Place, Worship St, London, EC2A 2FA, United Kingdom
Graduate School of Business, Nazarbayev University, Astana, Kazakhstan
Faculty of Economics and Business, KU Leuven, VIVES, Vlamingenstraat 83, Leuven, 3000, Belgium
National Bank of Belgium
Amazon UK Services Ltd.
Graduate School of Business
Faculty of Economics and Business
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