Wage and Leverage: Worker-Level Evidence from Korea

Jaeouk Kim

Emerging Markets Finance and Trade, 2022, vol. 58, issue 7, 1951-1960

Abstract: This paper provides new empirical evidence on the wage and leverage relationship, which supports the notion of strategic leverage. Unlike in previous papers, I use worker-firm matched data of Korea and find a significant negative relationship between wage and leverage. I argue that this negative relationship stems from Korean labor market conditions closer to the price-taking workers and price-setting firms. I further find that the relative bargaining power of workers significantly affects the wage and leverage relationship. Among the directors and union members, the negative relationship between wage and leverage becomes weaker. Finally, the relationship between the two remains significant after possible endogeneity concerns are accounted for by the instrumental variable approach.

Date: 2022
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DOI: 10.1080/1540496X.2021.1947792

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