Firm Leverage, Labor Market Size, and Employee Pay
August 2018
Working Paper Number:
CES-18-36
Abstract
We provide new estimates of the wage costs of firms' debt using an empirical approach that exploits within-firm geographical variation in workers' expected unemployment costs due to variation in local labor market in a large 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 wage costs are an important component in the overall cost of debt, but are not as large as implied by estimates based on ex post employee wage losses due to bankruptcy; we estimate that a 10 percentage point increase in firm leverage increases wage compensation for the median worker by 1.9% and total firm wage costs by 17 basis points of firm value.
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:
demand,
estimating,
payroll,
quarterly,
earnings,
employ,
finance,
leverage,
bankruptcy,
debt,
bankrupt
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Metropolitan Statistical Area,
Census of Manufactures,
Annual Survey of Manufactures,
Standard Industrial Classification,
National Science Foundation,
Federal Reserve Bank,
Census Bureau Longitudinal Business Database,
Longitudinal Business Database,
Center for Research in Security Prices,
Census of Manufacturing Firms,
Employer Identification Numbers,
Board of Governors,
Alfred P Sloan Foundation,
Longitudinal Employer Household Dynamics,
Employer-Household Dynamics,
Employment History File,
Individual Characteristics File,
Herfindahl Hirschman Index,
CAAA,
Federal Reserve Board of Governors,
International Trade Research Report,
Federal Statistical Research Data Center
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