The Price of Security: On the Causality and Impact of Lay-off Risks on Wages

Arent, Stefan and Nagl, Wolfgang (2011) The Price of Security: On the Causality and Impact of Lay-off Risks on Wages. Ifo Institute for Economic Research at the University of Munich, Ifo Working Papers 100, 35 p.

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Abstract or Table of Contents

We examine the impact of lay-off risks on wages. Portfolio as well as search theoretic modelling predicts higher exogenous lay-off risks to go along with higher wages. But, an impact of wages on lay-off risks (e.g., endogenous job destruction) is also plausible. Using the German BA Employment Panel (2008), we estimate a wage equation with exogenous lay-off risks for the most important industries in West Germany. We address the mutual causality by controlling for endogeneity via an instrumental variable approach. Furthermore, we restrict our analysis to the high skilled to avoid a high impact on tariff commitment. Our findings suggest the presence of risk premiums in three of five industries. The level of impact and its significance depends on the industry and on the gender of the employee.

Item Type: Discussion/ Working Paper (Unspecified)
Keywords: Lay-off risk, wages
Classification Codes (e.g. JEL): JEL Code: I31, J63
Status: Published
Related URLs:
Date Deposited: 23 Nov 2015 08:58
Last Modified: 01 Apr 2016 14:20

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