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The Impact of the Threat of Bankruptcy on the Structure of Compensation

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  • Curme, Michael
  • Kahn, Lawrence M

Abstract

This article builds and tests a model of the impact of a firm's bankruptcy probability on its propensity to offer deferred compensation schemes. Using 1983 Current Population Survey data, the authors find that, ceteris paribus, lower failure rates raise the incidence of pensions for nonunion workers outside manufacturing. Further, they find some evidence that, among those workers with a pension, a higher industry failure rate steepens tenure-earnings profiles (jointly controlling for union-nonunion and pension-no pension selectivity.) Such a result suggests that workers discount implicit promises of future earnings increases by the likelihood that the firm will not survive. Copyright 1990 by University of Chicago Press.

Suggested Citation

  • Curme, Michael & Kahn, Lawrence M, 1990. "The Impact of the Threat of Bankruptcy on the Structure of Compensation," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 419-447, October.
    • Handle: RePEc:ucp:jlabec:v:8:y:1990:i:4:p:419-47
    DOI: 10.1086/298229
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    Cited by:

    1. Addison, John T. & Heywood, John S. & Wei, Xiangdong, 2001. "Unions and Plant Closings in Britain: New Evidence from the 1990/98 WERS," IZA Discussion Papers 352, Institute of Labor Economics (IZA).
    2. David Neumark & Wendy A. Stock, 1999. "Age Discrimination Laws and Labor Market Efficiency," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1081-1110, October.
    3. Idson, Todd L & Valletta, Robert G, 1996. "Seniority, Sectoral Decline, and Employee Retention: An Analysis of Layoff Unemployment Spells," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 654-676, October.
    4. John T. Addison & John S. Heywood & Xiangdong Wei, 2003. "New Evidence on Unions and Plant Closings: Britain in the 1990s," Southern Economic Journal, John Wiley & Sons, vol. 69(4), pages 822-841, April.
    5. Haynes, Jonathan B. & Sessions, John G., 2013. "Work now, pay later? An empirical analysis of the pension–pay trade off," Economic Modelling, Elsevier, vol. 30(C), pages 835-843.
    6. Bowen, Robert M. & DuCharme, Larry & Shores, D., 1995. "Stakeholders' implicit claims and accounting method choice," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 255-295, December.
    7. Jan Erik Askildsen & Norman J. Ireland, 2003. "Bargaining Credibility and the Limits to Within‐firm Pensions," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 74(4), pages 515-528, December.
    8. Gaumont, D. & Merlateau, M.P., 1993. "Manager's Incentives and Individual Wealth," Working Paper Series 379, Research Institute of Industrial Economics.

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