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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Mar 19, 2018

Wages And Firm Performance: Evidence From the 2008 Financial Crisis


We examine the effect of higher wages on firm performance during the 2008 financial crisis. To identify variation in wages, we rely on heterogeneity in the timing of long-term wage agreements for a sample of UK firms. We instrument for firms signing long-term agreements overlapping with the crisis by the presence of a contract signed in 2006 or earlier and expiring before September 2008. Treated firms paid higher wages but also realized greater labor productivity relative to control firms. In line with efficiency wages, these findings demonstrate that the overall benefit of incentivizing employees exceeds the cost of higher wages.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals. 

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