Veranstaltungen des DIW Berlin/
Events of DIW Berlin

30 May 2018

DIW Seminar on Macroeconomics and Financial Markets Financial frictions and wages

This paper aims at analyzing the interaction between financial frictions and wages. We use a large data set for Germany for 2006 to 2014 that combines administrative data on workers and wages with detailed information on firms' balance sheets. Controlling for firm characteristics and time fixed effects, we find that higher leverage (as a measure for financial frictions) implies on average lower wages. To explain this empirical result, we build a theoretical model with labor market frictions and monitoring cost in the financial market. We show that wages react differently to financial frictions depending on whether firms use external borrowing to finance vacancy posting costs only or also the wage bill (as well as vacancy costs). If firms need to finance their wage bill, financial frictions induce a wedge between productivity and wages. Contrary to the existing literature, the model implies higher employment volatility with less rather than more rigid wages.

More Information
  • Britta Gehrke, Friedrich-Alexander-University Erlangen-Nürnberg

  • Time
    Joan Robinson Room DIW Berlin Room 3.3.002a Mohrenstraße 58 10117 Berlin
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