Borrowing from Employees: Wage Dynamics with Financial Constraints

Claudio Michelacci and Vincenzo Quadrini

Working Papers from CEMFI

Abstract: 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.

Date: 2005
New Economics Papers: this item is included in nep-bec, nep-dge, nep-fin and nep-mac
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Citations: View citations in EconPapers (30)

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Journal Article: Borrowing from Employees: Wage Dynamics with Financial Constraints (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2005_0501

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