Wages and the risk of displacement

Arbeitspapier

In this paper a simultaneous-equations model of firm closing and wage determination is developed in order to analyse how wages adjust to unfavorable shocks that raise the risk of displacement through firm closing, and to what extent a wage change affects the exit likelihood. Using a longitudinal matched worker-firm data set from Portugal, the results show that the fear of job loss generates wage concessions instead of compensating differentials. A novel result that emerges from this study is that firms with a higher incidence of minimum wage earners are more vulnerable to adverse demand shocks due to their inability to adjust wages downward. In fact, minimum wage restrictions were seen to increase the failure rates.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 1926

Classification and Topics

• Classification: Wirtschaft ; Wage Level and Structure; Wage Differentials ; Unemployment Insurance; Severance Pay; Plant Closings
• Subject: wages ; displacement risk ; concessions ; Kündigung ; Liquidation ; Lohn ; Schätzung

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Carneiro, Anabela ; Portugal, Pedro
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/33499
• Last update: 10.03.2025, 11:45 AM CET