Finance Seminar（2014-37）

Topic: Wage Stickiness and Human Capital Adjustment

Speaker: Dongmin Kong, Huazhong University of Science & Technology

Time: Wednesday, 17 December, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract: In this study, we examine managerial decisions which drive salary cost stickiness. Using the information of employee education and salary payment of Chinese public firms, we decompose salary cost changes into three components: capacity component, structure component and unit cost component. Capacity component is the component in salary cost changes related to the change of number of employees, structure component is the component in salary cost changes related to the change of education structure of employees and unit cost component is the component in salary cost changes related to the change of average salaries of employees. We find that the capacity component and the structure components are sticky, but the unit cost component is anti-sticky. Our results are robust to excluding salary costs of top management, using nominal numbers, using data of parent firms, and considering the persistence of firm’s tendency to underpay or overpay for employees. We also provide evidence on how adjustment costs, growth expectations and financial constraints affect the stickiness of salary costs and each of the component. In sum our evidence sheds light on the managerial decisions driving cost stickiness.