Job Market Seminar by Arkaja Chakraverty (ISB)

On Wednesday, February 8 at 1.40 pm, ICEF held the Job Market Seminar.
Speaker: Arkaja Chakraverty (ISB)
Theme: "Leverage, Unemployment Risk and Employee Compensation"

Venue: room 3211, bld. 3, ul. Shabolovka 26

Abstract: Extant literature documents both positive and negative effects of leverage on wages. High leverage results in lower wages by strengthening firm’s bargaining power vis-à-vis workers. The other strand, however, suggests high leverage exacerbates firm’s bankruptcy risk, against which employees demand higher compensation ex-ante. I show that unemployment risk – employees not being able to find another comparable job in the event of job-loss – plays a key role in determining the effect of leverage on wages. When unemployment-risk is low, wages decrease with leverage. As it becomes more prominent, wages increase with leverage, i.e. workers’ demand for risk-premium supersedes firm’s bargaining power.   

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