(DP 1998-02) Reasonable and Affordable Wage Adjustment Due to the Currency Crisis

Abstract

We estimates the affordable wage adjustment for various types of firms (by orientation and by share of labor in total cost) on the basis of reasonable estimates of price responses to the currency crisis. We conclude that, to minimize the likehood of layoffs, no more than 10 percent wage adjustment seen affordable for export-oriented firms. For domestic market-oriented firms, no more than 5 percent is reasonable. There are cases where even zero wage adjustment may not prevent layoffs.