Texto para discussão 06/2008

Risk of firm closure and wages in Brazil: compensating wage diferentials or bargaining concessions?
Luiz A. Esteves*

Abstract
The economic theory proposes two hypotheses for the relationship between wages and risk of job loss due to rm (or plant) closure. The rst hypothesis posits that workers at greater risk should be compensated by higher wages. This is known as the theory of compensating wage diferentials. The second hypothesis states that workers at rms with a greater risk of closure
would be willing to exchange higher wages for longer-term stability in the job. This is known as the theory of bargaining concessions. There is a paucity of empirical studies on this issue, and the results have been inconsistent. The aim of this paper is to provide evidence for the Brazilian manufacturing industry. To accomplish that, diferent risk measures, diferent databases, and dierent econometric methods are used. All the tests performed in this study conrm the theory
of compensating wage diferentials.

Keywords: exit; bankruptcy; severance payments; insolvency; wage determination.

JEL: C31, C33, J30, G10, G33, L25, L60

* Universidade Federal do Paraná & Università di Siena.

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