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The Impact of the Threat of Bankruptcy on the Structure of Compensation

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  • Curme, Michael
  • Kahn, Lawrence M

Abstract

This article builds and tests a model of the impact of a firm's bankruptcy probability on its propensity to offer deferred compensation schemes. Using 1983 Current Population Survey data, the authors find that, ceteris paribus, lower failure rates raise the incidence of pensions for nonunion workers outside manufacturing. Further, they find some evidence that, among those workers with a pension, a higher industry failure rate steepens tenure-earnings profiles (jointly controlling for union-nonunion and pension-no pension selectivity.) Such a result suggests that workers discount implicit promises of future earnings increases by the likelihood that the firm will not survive. Copyright 1990 by University of Chicago Press.

Suggested Citation

  • Curme, Michael & Kahn, Lawrence M, 1990. "The Impact of the Threat of Bankruptcy on the Structure of Compensation," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 419-447, October.
  • Handle: RePEc:ucp:jlabec:v:8:y:1990:i:4:p:419-47
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    References listed on IDEAS

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    1. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 453-476.
    2. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    3. repec:ucp:bknber:9780226726281 is not listed on IDEAS
    4. Kahn, Charles & Huberman, Gur, 1988. "Two-sided Uncertainty and "Up-or-Out" Contracts," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 423-444, October.
    5. Edward P. Lazear, 1984. "Raids and Offermatching," NBER Working Papers 1419, National Bureau of Economic Research, Inc.
    6. Ricart i Costa, Joan E, 1988. "Managerial Task Assignment and Promotions," Econometrica, Econometric Society, vol. 56(2), pages 449-466, March.
    7. Novos, I.E., 1988. "Worker Preferences And Firm Structure," Papers m8821, Southern California - Department of Economics.
    8. MacDonald, Glenn M, 1982. "A Market Equilibrium Theory of Job Assignment and Sequential Accumulation of Information," American Economic Review, American Economic Association, vol. 72(5), pages 1038-1055, December.
    9. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
    10. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-461, June.
    11. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    Cited by:

    1. Addison, John T. & Heywood, John S. & Wei, Xiangdong, 2001. "Unions and Plant Closings in Britain: New Evidence from the 1990/98 WERS," IZA Discussion Papers 352, Institute for the Study of Labor (IZA).
    2. David Neumark & Wendy A. Stock, 1999. "Age Discrimination Laws and Labor Market Efficiency," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1081-1110, October.
    3. Idson, Todd L & Valletta, Robert G, 1996. "Seniority, Sectoral Decline, and Employee Retention: An Analysis of Layoff Unemployment Spells," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 654-676, October.
    4. Haynes, Jonathan B. & Sessions, John G., 2013. "Work now, pay later? An empirical analysis of the pension–pay trade off," Economic Modelling, Elsevier, vol. 30(C), pages 835-843.
    5. Bowen, Robert M. & DuCharme, Larry & Shores, D., 1995. "Stakeholders' implicit claims and accounting method choice," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 255-295, December.

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