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Do risky banks pay their employees more?

Author

Listed:
  • Laetitia Lepetit

    (Laboratoire d'Analyse et de Prospective Économique (LAPE), Faculté de Droit et des Sciences Économiques, Université de Limoges)

  • Frank Strobel

    (Department of Economics, University of Birmingham)

  • Laurent Weill

    (LaRGE Research Center, Université de Strasbourg)

Abstract

This study investigates the relationship between bank risk and employee wage compensation using a comprehensive dataset of U.S. commercial banks spanning 1990 to 2022. Our key finding is that higher bank risk is associated with increased wage compensation. We interpret this pattern such that higher risk necessitates higher compensation to mitigate bankruptcy risk for employees. We additionally find that this positive relationship between bank risk and wage compensation is only observed for small banks, in favorable economic conditions and when bank concentration is low. These findings suggest that greater bargaining power of employees relative to banks increases the possibility for employees to demand higher wages in the presence of high bank risk. We also find that the positive relationship between bank risk and wage compensation only occurs when banks operate in states with higher past bank default risk, in line with the view that experience affects economic beliefs and behavior.

Suggested Citation

  • Laetitia Lepetit & Frank Strobel & Laurent Weill, 2024. "Do risky banks pay their employees more?," Working Papers of LaRGE Research Center 2024-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2024-09
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    References listed on IDEAS

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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