Wages and the Risk of Displacement
AbstractIn 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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1926.
Length: 24 pages
Date of creation: Jan 2006
Date of revision:
Publication status: published in: Research in Labor Economics, 2008, 28, 251-276
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Other versions of this item:
- 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.
- Carneiro, Anabela & Portugal, Pedro, 2010. "Wages and the risk of displacement," Working Paper Series 1159, European Central Bank.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
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