Wages and Firm Performance: Evidence from the 2008 Financial Crisis

53 Pages Posted: 16 Mar 2014 Last revised: 7 Jul 2020

See all articles by Paige Ouimet

Paige Ouimet

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Elena Simintzi

Centre for Economic Policy Research (CEPR); University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: July 5, 2020

Abstract

We examine the effect of paying higher wages on firm performance during the 2008 financial crisis. To identify variation in wages, we rely on heterogeneity in the timing of long-term wage agreements for a sample of UK firms. We instrument for firms signing long-term agreements overlapping with the crisis by the presence of a contract signed in 2006 or earlier and expiring before September 2008. Treated firms paid higher wages but also realized greater labor productivity relative to control firms. These findings are consistent with the intuition that opportunity cost differentials between treated and control firms induce employees to exert higher effort.

Keywords: labor contracts, wages, financial crisis, productivity

JEL Classification: J41, J30, J24, G01

Suggested Citation

Ouimet, Paige and Simintzi, Elena, Wages and Firm Performance: Evidence from the 2008 Financial Crisis (July 5, 2020). Available at SSRN: https://ssrn.com/abstract=2409496 or http://dx.doi.org/10.2139/ssrn.2409496

Paige Ouimet

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Elena Simintzi (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
475
Abstract Views
2,633
Rank
115,234
PlumX Metrics