How elastic is the demand for labour in Belgian enterprises? Results from firm level accounts data, 1987-1994

This paper analyzes wage elasticities using a panel dataset of 2800 large Belgian firms over the period 1987-1994. We explore various functional forms and find that the short-run wage elasticity varies between -0.37 and -0.65, while the long-run elasticity is robustly estimated to be larger than 1 in absolute value. These results are striking for they are much higher than those reported in previous studies using macroeconomic time-series data. This suggests that labour costs are more important in determining the demand for labour than initially was believed.