Firm Leverage, Labor Market Size, and Employee Pay

Timothy E. Dore and Rebecca Zarutskie
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Timothy E. Dore: https://www.federalreserve.gov/econres/tim-e-dore.htm

No 2017-078, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We provide new estimates of the wage costs of firms' debt. Our empirical approach exploits within-firm geographical variation in workers' expected unemployment costs due to variation in local labor market size and uses a large representative 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 that a 10 percentage point increase in leverage increases wage compensation for the median worker by 1.9% and total firm wage costs by 17 basis points of firm value.

Keywords: Capital structure; Costs of financial distress; Wages and compensation (search for similar items in EconPapers)
JEL-codes: G32 J31 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2017-08-08
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Firm Leverage, Labor Market Size, and Employee Pay (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-78

DOI: 10.17016/FEDS.2017.078

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