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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Firm Leverage, Labor Market Size, and Employee Pay
We provide new estimates of the wage costs of firms' debt. Our empirical approach exploits within-firm geographical variation in workers' expected unemployment costs due to variation in local labor market size and uses a large representative sample of public firms. We find that, following an increase in firm leverage, workers with higher unemployment costs experience higher wage growth relative to workers at the same firm with lower unemployment costs. Overall, our estimates suggest that a 10 percentage point increase in leverage increases wage compensation for the median worker by 1.9% and total firm wage costs by 17 basis points of firm value.
Cite this item
Timothy E Dore & Rebecca Zarutskie, Firm Leverage, Labor Market Size, and Employee Pay, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2017-078, 08 Aug 2017.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
Keywords: Capital structure ; Costs of financial distress ; Wages and compensation
This item with handle RePEc:fip:fedgfe:2017-78
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