Financial Markets and Wages

48 Pages Posted: 13 May 2005

See all articles by Claudio Michelacci

Claudio Michelacci

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Vincenzo Quadrini

University of Southern California - Marshall School of Business - Finance and Business Economics Department; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2005

Abstract

We study a labor market equilibrium model in which firms sign optimal long-term contracts with workers. Firms that are financially constrained offer an increasing wage profile: they pay lower wages today in exchange of higher wages once they become unconstrained and operate at a larger scale. In equilibrium, constrained firms are on average smaller and pay lower wages. In this way, the model generates a positive relation between firm size and wages. Using data from the National Longitudinal Survey of Youth (NLSY), we show that the key dynamic properties of the model are supported by the data.

Keywords: Investment financing, long-term contracts, wages

JEL Classification: E24, G31, J31

Suggested Citation

Michelacci, Claudio and Quadrini, Vincenzo, Financial Markets and Wages (January 2005). CEPR Discussion Paper No. 4867. Available at SSRN: https://ssrn.com/abstract=722464

Claudio Michelacci (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 4290 551 (Phone)
+34 91 4291 056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vincenzo Quadrini

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
12
Abstract Views
825
PlumX Metrics