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Financial Markets and Wages

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  • Claudio Michelacci
  • Vincenzo Quadrini

Abstract

We study a labor 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 of higher wages once they become unconstrained and operate at a larger scale. In equilibrium, constrained firms are on average smaller and pay lower wages. In this way the model generates a positive relation between firm size and wages. Using data from the National Longitudinal Survey of Youth (NLSY) we show that the key dynamic properties of the model are supported by the data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11050.

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Date of creation: Jan 2005
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Handle: RePEc:nbr:nberwo:11050

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Cited by:
  1. Brixy, Udo & Kohaut, Susanne & Schnabel, Claus, 2004. "Do newly founded firms pay lower wages? : first evidence from Germany," IAB Discussion Paper 200404, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  2. Jonathan P. Thomas & Tim Worrall, 2007. "Limited Commitment Models Of The Labour Market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(5), pages 750-773, November.
  3. Gernandt, Johannes & Pfeiffer, Friedhelm, 2006. "Einstiegslöhne bei unvollkommenen Arbeitsmärkten," Publications of Darmstadt Technical University, Institute of Economics (VWL) 21457, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  4. Eisfeldt, Andrea L. & Rampini, Adriano A., 2007. "New or used? Investment with credit constraints," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2656-2681, November.
  5. Vincenzo Quadrini, 2004. "EconomicDynamics Interviews Vincenzo Quadrini on Firm Dynamics," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 5(2), April.
  6. Claudio Michelacci & Vincenzo Quadrini, 2005. "Borrowing from Employees: Wage Dynamics with Financial Constraints," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 360-369, 04/05.
  7. Matthias Kredler, 2010. "Experience vs. Obsolescence: A Vintage-Human-Capital Model," 2010 Meeting Papers 369, Society for Economic Dynamics.
  8. Kredler, Matthias, 2008. "Experience vs. Obsolescence: A Vintage-Human-Capital Model," MPRA Paper 10200, University Library of Munich, Germany.

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