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Wages and the Risk of Displacement

Anabela Carneiro () and Pedro Portugal

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In this paper a simultaneous-equations model of firm closing and wage determination is developed in order to analyse how wages adjust to unfavorable shocks that raise the risk of displacement through firm closing, and to what extent a wage change affects the exit likelihood. Using a longitudinal matched worker-firm data set from Portugal, the results show that the fear of job loss generates wage concessions instead of compensating differentials. A novel result that emerges from this study is that firms with a higher incidence of minimum wage earners are more vulnerable to adverse demand shocks due to their inability to adjust wages downward. In fact, minimum wage restrictions were seen to increase the failure rates.

Keywords: Wages; Displacement Risk; Concessions (search for similar items in EconPapers)
JEL-codes: J31 J65 (search for similar items in EconPapers)
Date: 2003-05
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Related works:
Working Paper: Wages and the risk of displacement (2010) Downloads
Chapter: Wages and the Risk of Displacement (2008) Downloads
Working Paper: Wages and the Risk of Displacement (2006) Downloads
Working Paper: Wages and the Risk of Displacement (2003) Downloads
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