Corporate Reorganization as Labor Insurance in Bankruptcy
77 Pages Posted: 12 Mar 2021 Last revised: 30 Aug 2022
Date Written: January 7, 2021
This paper investigates the consequences of corporate reorganization and liquidation on the reallocation of labor in bankruptcy using a random judge assignment design and reorganization filings from Portugal. Reorganization provides labor insurance to workers in bankruptcy, having a positive and persistent effect on wages, even as most workers leave reorganized firms. Reduced human capital losses and improved worker-firm matches with new employers are two mechanisms that explain the effect of reorganization on wages. The positive effect of reorganization on worker outcomes is concentrated in thin and low-growth labor markets.
Keywords: corporate reorganization, bankruptcy, cost of job loss
JEL Classification: G33, G38, J24, J63, K39,
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