NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Financial Markets and Wages

Claudio Michelacci, Vincenzo Quadrini

NBER Working Paper No. 11050
Issued in January 2005
NBER Program(s):   EFG   LS

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.

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Document Object Identifier (DOI): 10.3386/w11050

Published: Claudio Michelacci & Vincenzo Quadrini, 2009. "Financial Markets and Wages," Review of Economic Studies, Blackwell Publishing, vol. 76(2), pages 795-827, 04.

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