Firm Leverage, Labor Market Size, and Employee Pay

Timothy E. Dore and Rebecca Zarutskie

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: We provide new estimates of the wage costs of firms’ debt using an empirical approach that exploits within-firm geographical variation in workers’ expected unemployment costs due to variation in local labor market in a large sample of public firms. We find that, following an increase in firm leverage, workers with higher unemployment costs experience higher wage growth relative to workers at the same firm with lower unemployment costs. Overall, our estimates suggest wage costs are an important component in the overall cost of debt, but are not as large as implied by estimates based on ex post employee wage losses due to bankruptcy; we estimate that a 10 percentage point increase in firm leverage increases wage compensation for the median worker by 1.9% and total firm wage costs by 17 basis points of firm value.

Pages: 52 pages
Date: 2018-08
New Economics Papers: this item is included in nep-cfn
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https://www2.census.gov/ces/wp/2018/CES-WP-18-36.pdf First version, 2018 (application/pdf)

Related works:
Working Paper: Firm Leverage, Labor Market Size, and Employee Pay (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:18-36

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