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Wage Concessions and Debt Forgiveness as Strategic Responses to Financial Distress

Author

Listed:
  • David Margolis

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, IZA - Institute for the Study of Labor, TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Pascale Viala

Abstract

We propose a model of strategic interactions betweeen a firm, its workers and its creditors in a dynamic, uncertain environment. We show that the firm can play if one stakeholder against another increases the likehood and magnitude of concessions being made, either on a bilateral or trilateral basis. Debt is shown to undermine the firm's ability to commit to an increasing wage-seniority profile, which brings about the classic Williamson (1985) holdup phenomenon when workers invest in firm-specific human capital.

Suggested Citation

  • David Margolis & Pascale Viala, 1997. "Wage Concessions and Debt Forgiveness as Strategic Responses to Financial Distress," Post-Print halshs-00377913, HAL.
    • Handle: RePEc:hal:journl:halshs-00377913
    as

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