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Financial Markets and Wages

Claudio Michelacci () and Vincenzo Quadrini ()

Review of Economic Studies, 2009, vol. 76, issue 2, 795-827

Abstract: We study a labour market equilibrium model in which firms sign optimal long-term contracts with workers. Firms that are financially constrained offer an increasing wage profile: they pay lower wages today in exchange for higher future wages once they become unconstrained. Because constrained firms grow faster, the model predicts a positive correlation between the growth of wages and the growth of the firm. Under some conditions, the model also generates a positive relation between firm size and wages. Using matched employer-employee data from Finland and the National Longitudinal Survey of Youth for the U.S., we show that the key dynamic properties of the model are supported by the data. Copyright , Wiley-Blackwell.

Date: 2009
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Working Paper: Financial Markets and Wages (2005) Downloads
Working Paper: Financial Markets and Wages (2005) Downloads
Working Paper: Financial Markets and Wages (2004)
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