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

This article builds and tests a model of the impact of a firm's bank-ruptcy probability on its propensity to offer deferred compensation schemes. Using 1983 Current Population Survey data, we find that, ceteris paribus, lower failure rates raise the incidence of pensions for nonunion workers outside manufacturing. Further, we 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.

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