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Financial Markets and Wages

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  • Claudio Michelacci
  • Vincenzo Quadrini
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    Abstract

    We study a labour market equilibrium model in which firms sign optimal long-term contracts with workers. Firms that are financially constrained offer an increasing wage profile: they pay lower wages today in exchange for higher future wages once they become unconstrained. Because constrained firms grow faster, the model predicts a positive correlation between the growth of wages and the growth of the firm. Under some conditions, the model also generates a positive relation between firm size and wages. Using matched employer-employee data from Finland and the National Longitudinal Survey of Youth for the U.S., we show that the key dynamic properties of the model are supported by the data. Copyright , Wiley-Blackwell.

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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2008.00524.x
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 76 (2009)
    Issue (Month): 2 ()
    Pages: 795-827

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    Handle: RePEc:oup:restud:v:76:y:2009:i:2:p:795-827

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    Cited by:
    1. Jürgen Antony & Torben Klarl & Alfred Maußner, 2010. "Firm Heterogeneity, Credit Constraints, and Endogenous Growth," DEGIT Conference Papers c015_045, DEGIT, Dynamics, Economic Growth, and International Trade.
    2. Kredler, Matthias, 2014. "Vintage human capital and learning curves," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 154-178.
    3. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2010. "Credit within the Firm," Economics Working Papers ECO2010/16, European University Institute.
    4. Marimon, Ramon & Quadrini, Vincenzo, 2011. "Competition, human capital and income inequality with limited commitment," Journal of Economic Theory, Elsevier, vol. 146(3), pages 976-1008, May.
    5. Kredler, Matthias, 2014. "Experience vs. obsolescence: A vintage-human-capital model," Journal of Economic Theory, Elsevier, vol. 150(C), pages 709-739.
    6. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2010. "Financial Constraints and Firm Dynamics," Discussion Papers 2010/99, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Tommaso Monacelli & Vincenzo Quadrini & Antonella Trigari, 2011. "Financial Markets and Unemployment," NBER Working Papers 17389, National Bureau of Economic Research, Inc.
    8. Akyol, Ali C. & Verwijmeren, Patrick, 2013. "Human capital costs, firm leverage, and unemployment rates," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 464-481.

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