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. The results show that the fear of job loss generates bargaining 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 Banco de Portugal, Economics and Research Department in its series Working Papers with number w200310.
Date of creation: 2003
Date of revision:
Other versions of this item:
- Carneiro, Anabela & Portugal, Pedro, 2010. "Wages and the risk of displacement," Working Paper Series 1159, European Central Bank.
- 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, 2006. "Wages and the Risk of Displacement," IZA Discussion Papers 1926, Institute for the Study of Labor (IZA).
- 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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