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Financial Markets and Wages

Claudio Michelacci () and Vincenzo Quadrini ()

No 4867, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 of higher wages once they become unconstrained and operate at a larger scale. In equilibrium, constrained firms are on average smaller and pay lower wages. In this way the model generates a positive relation between firm size and wages. Using data from the National Longitudinal Survey of Youth (NLSY) we show that the key dynamic properties of the model are supported by the data.

Keywords: investment financing; long-term contracts; wages (search for similar items in EconPapers)
JEL-codes: E24 G31 J31 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-dge, nep-fin, nep-fmk, nep-lab and nep-mac
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Journal Article: Financial Markets and Wages (2009) Downloads
Working Paper: Financial Markets and Wages (2005) Downloads
Working Paper: Financial Markets and Wages (2004)
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