Financing Skilled Labor
WFA 2019 Meetings Paper
50 Pages Posted: 7 Aug 2018 Last revised: 31 Jan 2020
Date Written: January 30, 2020
This paper studies how negotiations to hire skilled workers affect workers' compensation structure and firm financing. It shows that firms with strong bargaining power offer fixed wages, secured by a credit line. By contrast, firms trying to accommodate workers' demands offer equity-based compensation. The model highlights two main factors affecting workers' compensation structure and firm financing. The first is workers' ability to play firms --- often making different types of offers --- off against each other. The second is that workers' compensation structure affects the risk that workers want to leave when others are leaving. The evidence supports the model's main predictions.
Keywords: financing wages, wage structure of non-executive employees, worker runs, worker bargaining power, noncompetition agreements
JEL Classification: G32, M52, J54, J33
Suggested Citation: Suggested Citation