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Borrowing From Employees: Wage Dynamics With Financial Constraints

  • Vicenzo Quadrini

    ()

  • Claudio Michelacci

    ()

    (CEMFI, Centro de Estudios Monetarios y Financieros)

We analyze how the financial conditions of the firm affect the compensation structure of workers, the size of the firm, and its dynamics. Firms that are financially constrained offer long-term wage contracts characterized by an increasing wage profile, that is,they pay lower wages today in exchange of higher future wages, effectively borrowing form their employees. Because constrained firms also operate at a suboptimal scale, which then increases gradually over time, we have that younger and smaller firms grow faster and pay lower wages.

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File URL: http://www.cemfi.es/ftp/wp/0501.pdf
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Paper provided by CEMFI in its series Working Papers with number wp2005_0501.

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Date of creation: Jan 2005
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Handle: RePEc:cmf:wpaper:wp2005_0501
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  1. Thomas F. Cooley & Vincenzo Quadrini, 1999. "Financial Markets and Firm Dynamics," Working Papers 99-14, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series /1991/233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Stephen Nickell & Daphne Nicolitsas, 1995. "How does financial pressure affect firms?," LSE Research Online Documents on Economics 20698, London School of Economics and Political Science, LSE Library.
  4. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  5. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  6. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 285-315, 04.
  7. Blanchflower, D. & Oswald, A. & Garrett, M., 1988. "Insider Power In Wage Determination," Papers 319, London School of Economics - Centre for Labour Economics.
  8. Thomas Cooley & Ramon Marimon & Vincenzo Quadrini, 2003. "Aggregate Consequences of Limited Contract Enforceability," Working Papers 1, Barcelona Graduate School of Economics.
  9. Claudio Michelacci & Vincenzo Quadrini, 2005. "Financial Markets and Wages," NBER Working Papers 11050, National Bureau of Economic Research, Inc.
  10. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  11. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
  12. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
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