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 Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 0308.
Length: 23 pages
Date of creation: May 2003
Date of revision:
Wages; Displacement Risk; Concessions;
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.
- Carneiro, Anabela & Portugal, Pedro, 2006. "Wages and the Risk of Displacement," IZA Discussion Papers 1926, Institute for the Study of Labor (IZA).
- 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, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
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