Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/33499
Authors: 
Carneiro, Anabela
Portugal, Pedro
Year of Publication: 
2006
Series/Report no.: 
IZA Discussion Papers 1926
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.
Subjects: 
wages
displacement risk
concessions
JEL: 
J31
J65
Document Type: 
Working Paper

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