Do risky banks pay their employees more?

Laetitia Lepetit, Frank Strobel and Laurent Weill

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), 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.

Keywords: bank; risk; wage determination. (search for similar items in EconPapers)
JEL-codes: G21 J31 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-hrm and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2024-09

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