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Wages and Firm Performance: Evidence from the 2008 Financial Crisis
[The effect of wage bargains on the stock market value of the firm]

Author

Listed:
  • Paige Ouimet
  • Elena Simintzi

Abstract

We examine the effect of higher wages on firm performance during the 2008 financial crisis. To identify variation in wages, we rely on heterogeneity in the timing of long-term wage agreements for a sample of U.K. firms. We instrument for firms signing long-term agreements overlapping with the crisis by the presence of a contract signed in 2006 or earlier and expiring before September 2008. Treated firms not only paid higher wages but also realized greater labor productivity relative to control firms. These findings are consistent with the intuition that opportunity cost differentials between treated and control firms induce employees to exert higher effort. (JEL J41, J30, J24, G01)Received February 28, 2019; editorial decision July 8, 2020 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Paige Ouimet & Elena Simintzi, 2021. "Wages and Firm Performance: Evidence from the 2008 Financial Crisis [The effect of wage bargains on the stock market value of the firm]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(2), pages 273-305.
    • Handle: RePEc:oup:rcorpf:v:10:y:2021:i:2:p:273-305.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfaa019
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    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • G01 - Financial Economics - - General - - - Financial Crises

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