The Elephant in the Room: The Impact of Labor Obligations on Credit Markets

• 成果类型: Article
• 署名作者: Favilukis, Jack; Lin, Xiaoji; Zhao, Xiaofei
• 署名单位: University of British Columbia; University of Minnesota System; University of Minnesota Twin Cities; Georgetown University
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20170156
• 发表日期: 2020
• 页码: 1673-1712
• 关键词: capital structure; long-run; wage rigidity; Debt overhang; asset returns; TOBINS Q; RISK; spreads; consumption; bankruptcy

摘要

We show that labor market frictions are first-order for understanding credit markets. Wage growth and labor share forecast aggregate credit spreads and debt growth as well as or better than alternative predictors. They also predict credit risk and debt growth in a cross section of international firms. Finally, high labor share firms choose lower financial leverage. A model with labor market frictions and risky long-term debt can explain these findings, and produce large credit spreads despite realistically low default probabilities. This is because precommitted payments to labor make other committed payments i.e., interest) riskier.