Wages and the risk of displacement
AbstractIn this paper a simultaneous-equations model of firm closing and wage determination is specified in order to analyse how wages adjust to unfavorable product demand shocks that raise the risk of displacement through firm closing, and to what extent an exogenous wage change affects the exit likelihood. Using a longitudinal matched worker-firm data set from Portugal, the estimation results suggest that, under the existence of noncompetitive rents, the fear of job loss leads workers to accept wage concessions, even though a compensating differential for the ex ante risk of displacement might exist. A novel result that emerges from this study is that firms with a higher incidence of minimum wage earners are more vulnerable to adverse shocks due to their inability to adjust wages downward. Indeed, minimum wage restrictions were seen to increase the failure rates. JEL Classification: J31, J65
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Other versions of this item:
- Carneiro, Anabela & Portugal, Pedro, 2006. "Wages and the Risk of Displacement," IZA Discussion Papers 1926, Institute for the Study of Labor (IZA).
- Anabela Carneiro & Pedro Portugal, 2003. "Wages and the Risk of Displacement," Working Papers w200310, Banco de Portugal, Economics and Research Department.
- Anabela Carneiro & Pedro Portugal, 2003. "Wages and the Risk of Displacement," CEF.UP Working Papers 0308, Universidade do Porto, Faculdade de Economia do Porto.
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
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