Labor market dynamics under long-term wage contracting

Recent research seeking to explain the strong cyclicality of US unemployment emphasizes the role of wage rigidity. This paper proposes a micro-founded model of wage rigidity—an equilibrium business cycle model of job search, where risk neutral firms post optimal long-term contracts to attract risk averse workers. Equilibrium contracts feature wage smoothing, limited by the inability of parties to commit to contracts. The model is consistent with aggregate wage data if neither worker nor firm can commit, producing too rigid wages otherwise. Wage rigidity does not lead to a substantial increase in the cyclical volatility of unemployment.     

Labour market conditions and the corporate financing decision: A European analysis

This study examines the influence of labour market conditions on corporate capital structure in a sample of 2892 firms from France, Germany, Italy, Spain, and the UK. After considering the effect of unemployment and inflation, we analyse the impact of two market imperfections: employees’ rights and downward wage rigidity. Results indicate that financial leverage responds to changes in unemployment and inflation. We also find that the influence of employees’ rights is non-linear, whereas the negative effect of downward wage rigidity is moderated by firms’ market power. Taken together, our results show that corporate financial decisions are conditioned not only by firm-level issues but also by a country’s labour market.     

Time inconsistency as a rationale for public unemployment insurance

A role for public unemployment insurance is developed based on the inability of the government to commit to a future rate of unemployment. This is illustrated using a model in which a minimum wage policy combined with unemployment insurance is welfare-improving. Unemployment insurance could be decentralized to the private sector if the government could commit to a minimum wage. However, if not, a government that acts in the interest of the workers will have an incentive to increase the minimum wage to exploit private insurers. In the absence of commitment, an equilibrium with private unemployment insurance will not exist.     

Who works for startups? The relation between firm age,employee age,and growth

Young firms disproportionately employ and hire young workers. On average, young employees in young firms earn higher wages than young employees in older firms. Young employees disproportionately join young firms with greater innovation potential and that exhibit higher growth, conditional on survival. We argue that the skills, risk tolerance, and joint dynamics of young workers contribute to their disproportionate share of employment in young firms. Moreover, an increase in the supply of young workers is positively related to new firm creation in high-tech industries, supporting a causal link between the supply of young workers and new firm creation.     

Financial Reporting Quality and Wage Differentials: Evidence from Worker-Level Data

We examine whether financial reporting quality affects worker wages using employer-employee matched data in the United States. We find that low financial reporting quality is associated with a compensating wage differential—that is, a risk premium—using three distinct approaches while controlling for worker characteristics by (1) regressing wages on firm-year–level and firm-level reporting quality, (2) documenting wage changes when workers switch firms, and (3) estimating a structural approach that separates reporting quality from performance-related volatility. We find evidence consistent with two channels: performance pay and turnover risk, where workers bear risks from noise in performance measurement and unemployment, respectively. To mitigate endogeneity concerns, we show that—after the accounting scandals in 2002 and after the announcements of an internal control weakness (ICW)—former Arthur Andersen clients and ICW firms pay wage premiums to employees, with magnitudes between 0.9% and 2.8% of annual wages.     

Evaluating the economic significance of downward nominal wage rigidity

The existence of downward nominal wage rigidity has been abundantly documented, but what are its economic implications? This paper demonstrates that, even when wages are allocative, downward wage rigidity can be consistent with weak macroeconomic effects. Firms have an incentive to compress wage increases as well as wage cuts when downward wage rigidity binds. By neglecting compression of wage increases, previous literature may have overstated the costs of downward wage rigidity to firms. Using micro-data from the US and Great Britain, I find that the evidence for the compression of wage increases when downward wage rigidity binds. Accounting for this reduces the estimated increase in aggregate wage growth due to wage rigidity to be much closer to zero. These results suggest that downward wage rigidity may not provide a strong argument against the targeting of low inflation rates.     

Optimal unemployment benefit policy and the firm productivity distribution

This paper provides a novel justification for a declining time profile of unemployment benefits that does not rely on moral-hazard or consumption-smoothing considerations. We consider a simple search environment with homogeneous workers and low- and high-productivity firms. By introducing a declining time profile of benefits, the government can affect the equilibrium wage profile in a manner that enhances the sorting of workers across low- and high-productivity firms. We demonstrate that optimal government policy depends on the dispersion and skewness of the firms’ productivity distribution.     

Product markets and industry‐specific training

We develop a product market theory to explain why firms provide their workers with skills that are also useful to their competitors. Firms first decide whether to invest in industry‐specific training, then make wage offers for each others’ trained employees and finally engage in imperfect product market competition. Equilibria with and without training can emerge. If competition is soft, firms invest in training if others do. Thereby, they avoid having to pay high wages for trained workers. Furthermore, we draw welfare conclusions from the analysis. Finally, we discuss how our ideas apply to supplier relationships and to general training.     

Can a Shorter Workweek Induce Higher Employment? Mandatory Reductions in the Workweek and Employment Subsidies

This paper presents a unified model of the impact on employment of a mandatory reduction in work hours in combination with an employment subsidy to reduce quasi-fixed costs of employment, while attempting to maintain worker's take-home pay or welfare level. Achieving the dual policy objectives of enhancing employment and maintaining worker income is not necessarily feasible. Nevertheless, a reduction in the legal workweek may induce a degree of downward wage flexibility, while an employment subsidy to firms accommodates downward wage rigidity. It may be possible, therefore, to increase employment with a policy that combines a reduction in the workweek with an employment subsidy. In general, however, the long run employment outcome is ambiguous, and a decline in output cannot be ruled out. More direct policy measures whose impact can be assessed with greater certainty—in particular, removing structural rigidities in the labor market—should be given priority to decrease long term unemployment.     

The residual claim of rank and file employees

This paper estimates the intensity of the value-maximization incentives for average employees generated through the combination of wage, salary, and bonus mechanisms. This is accomplished through estimation of the elasticity of average employee hourly compensation with respect to changes in firm performance. This performance elasticity indicates the degree of alignment between employee and shareholder objectives, and it can also be interpreted as an incomplete residual income claim for employees. The estimated performance elasticity for the full sample of firms is not significantly different from a CEO salary-plus-bonus performance elasticity of 0.1 published in Coughlan and Schmidt [Journal of Accounting and Economics 7 (1985) 43]. Jensen and Murphy [Journal of Political Economy 98 (1990) 225] find that CEOs received approximately US$3.25 for each US$1000 increase in shareholder wealth. This translates to an elasticity of just over 57, but most of these payments come through channels other than salaries and bonuses. Jensen and Murphy report a performance sensitivity of salary and bonus payments for CEOs that is equivalent to analogous elasticities for rank and file workers reported in this paper. While the rewards CEOs receive through salary and bonus channels are larger than those of average employees in absolute terms, these rewards represent comparable fractions of income. This paper also finds differences in the pay-performance link based on firm size. The estimated performance elasticity is 0.197 in small firms and is indistinguishable from zero in large firms. The results indicate that firms use wage, salary and bonus adjustments to direct approximately 5.3% of firm value increases to employees. Although the precise link between pay and performance is not visible with this data, these results indicate that average employees benefit when the firm performs well.     

Do Entrenched Managers Pay Their Workers More?

Analyzing a panel that matches public firms with worker-level data, we find that managerial entrenchment affects workers' pay. CEOs with more control pay their workers more, but financial incentives through cash flow rights ownership mitigate such behavior. Entrenched CEOs pay more to employees closer to them in the corporate hierarchy, geographically closer to the headquarters, and associated with conflict-inclined unions. The evidence is consistent with entrenched CEOs paying more to enjoy private benefits such as lower effort wage bargaining and improved social relations with employees. Our results show that managerial ownership and corporate governance can play an important role for employee compensation.     

The labour market in an equilibrium business cycle model

This paper extends the basic, multimarket model of Lucas (1973), to explicitly consider the labour market. It builds on an important distinction between the product wage, entering the decision function of firms, and the real wage, entering the decision function of workers. Because of the unobservability of the price level workers make forecasting errors in trying to calculate their real wage, despite having rational expectations. This gives rise to a Phillips curve. The major new result of the paper is the demonstration that wages are less variable than prices, which offers an equilibrium interpretation of wage stickiness.     

Downward Nominal Wage Rigidities Bend the Phillips Curve

We introduce a model of monetary policy with downward nominal wage rigidities and show that both the slope and curvature of the Phillips curve depend on the level of inflation and the extent of downward nominal wage rigidities. This is true for the both the long‐run and the short‐run Phillips curve. Comparing simulation results from the model with data on U.S. wage patterns, we show that downward nominal wage rigidities likely have played a role in shaping the dynamics of unemployment and wage growth during the last three recessions and subsequent recoveries.     

Taxation and skills investment in frictional labor markets

This paper examines the effects of wage taxation and corporate income taxation on training investment in frictional labor markets. Because of labor market frictions, the wage structure is compressed and workers do not capture the entire return from their skills. As a result, both firms and workers have incentives to support part of the costs of training investments. The analysis shows that when decisions to invest in training are made by firms and workers acting cooperatively, a wage tax increases the level of investment in skills whereas a corporate income tax decreases it. In this case, the introduction of a small wage tax unambiguously increases efficiency. The effects of both types of taxes on training are reversed when investment decisions are taken by firms alone. In any case, a corporate income tax is not neutral with respect to decisions to invest in skills even if the full cost of investment is deducted from taxable income in the period when it is incurred and the tax system provides full loss offset.     

The Impact of a Minimum‐Wage Increase on Temporary‐Contract Workers

We study the impact of the 2016 increase in the Irish minimum wage on the hours worked and the probability of job loss of minimum‐wage workers. We pay particular attention to temporary‐contract workers, who may be more susceptible to changes to their working conditions than permanent employees. The results indicate that the increase in the minimum wage had a negative and statistically significant effect on the hours worked of minimum‐wage workers, with an average reduction of approximately 0.6 hours per week. For temporary workers, the effect was greater, with a decline of approximately 3 hours per week. We find no evidence that the increase in the minimum wage led to an increased probability of becoming jobless in the six‐month period following the rate change, nor did it affect employment shares in sectors employing large numbers of minimum‐wage workers.     

职工薪酬与会计稳健性——基于中国上市公司的经验证据

企业职工对未来可持续的高工资和管理层对未来低劳动力成本的不同期望,可能导致两者对会计稳健性需求的差异。本文以Khan et al.(2009)的C Score为会计稳健性的计量方式,分析了职工薪酬、工资刚性与会计稳健性的关系。结果显示:较高的职工薪酬与较强的会计稳健性相联系;工资的向下刚性特征与较强的会计稳健性相联系;作为工会规模代理变量的职工人数也与会计稳健性显著正相关。此外2008年实行《新劳动合同法》之后,企业的会计稳健性有了显著提高,这也可能侧面体现了职工与会计稳健性的关系。本文的研究意义在于联结了传统的职工薪酬研究和会计稳健性研究,对Watts(2003)提出的与会计稳健性相关的契约集合进行了扩展,显示了职工薪酬契约对会计稳健性的影响。     

最低工资与企业创新

本文考察了最低工资对企业创新的影响。研究发现,最低工资显著促进了企业创新,通过相邻样本分析、双重差分策略以及其他一系列稳健性检验发现,结论基本稳健。最低工资改善了企业的物质资本,降低了低技能工人就业,提高了高技能工人就业,促进了企业人力资本优化,从而为企业创新提供了硬件和软件条件。企业实现创新的方式有自创和引进技术两种,最低工资提高了企业的创新效率。进一步研究发现,最低工资改善了企业的要素结构和全要素生产率。异质性分析发现,最低工资对劳动密集型企业、平均工资较低的企业、行业竞争激烈的企业以及高市场化地区企业的创新影响更加明显。本文的研究结果表明,最低工资政策具有促进企业创新升级的作用,这与党的十九届五中全会提出的“坚持创新驱动发展”的战略目标相一致。     

Minimum wages and non-listed firm’s earnings management: Evidence from a geographic discontinuity design

We examine how and to what extent minimum wage shapes non-listed firms’ earnings information production. To identify the causality, we introduce an improved geographic information system technique to locate firms in areas that straddle the continuities of county borders and then exploit discontinuities of minimum wage at county borders. We find that firms significantly manage earnings information upward as response to increases in minimum wages, particularly for firms with financial constraints. Our findings shed light on the effects of labor policy on the information production of firms and provide policy implications to regulators concerned with the allocation efficiency of capital markets.     

最低工资与企业创新

本文考察了最低工资对企业创新的影响。研究发现,最低工资显著促进了企业创新,通过相邻样本分析、双重差分策略以及其他一系列稳健性检验发现,结论基本稳健。最低工资改善了企业的物质资本,降低了低技能工人就业,提高了高技能工人就业,促进了企业人力资本优化,从而为企业创新提供了硬件和软件条件。企业实现创新的方式有自创和引进技术两种,最低工资提高了企业的创新效率。进一步研究发现,最低工资改善了企业的要素结构和全要素生产率。异质性分析发现,最低工资对劳动密集型企业、平均工资较低的企业、行业竞争激烈的企业以及高市场化地区企业的创新影响更加明显。本文的研究结果表明,最低工资政策具有促进企业创新升级的作用,这与党的十九届五中全会提出的“坚持创新驱动发展”的战略目标相一致。     

Production in Entrepreneurial Firms: The Effects of Financial Constraints on Labor and Capital

I model the contrasting capital-labor decisions of financiallyconstrained and unconstrained firms. I show that financiallyrestricted firms use relatively more labor than physical capitalbecause informed employees provide more efficient financingthan uninformed capital suppliers. I demonstrate that constrainedfirms cannot easily attract new employees to replace existingstaff. Their greater employee retention aligns owner-workerincentives and encourages workers to make firm-specific investments.Constrained firms, however, gradually suffer from their inabilityto replace low-quality workers, such that their relative laborproductivity decreases over time. Empirical tests utilizinginstrumental variables confirm several implications of the theory.