Plant Closings and the Value of the Firm

Daniel Hamermesh

The Review of Economics and Statistics, 1988, vol. 70, issue 4, 580-86

Abstract: Negative product-market shocks reduce wage growth and increase the probability of plant closing. There is a U-shaped relation between th is probability and job tenure that proxies the specific human capital that raises a firm's value. Estimates based on Panel Study of Income Dynamics data for 1977-81 generally support the model. They show that wages grow less rapidly among workers who will subsequently be displaced and imply that large wage concessions reduce the risk of pl ant closing only slightly. Copyright 1988 by MIT Press.

Date: 1988
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