Negotiating with Labor Under Financial Distress

Efraim Benmelech, Nittai K. Bergman, and Ricardo Enriquez
NBER Working Paper No. 17192
July 2011
JEL No. G23,G32,G33,J21,J24,J26,J31

Abstract:

We analyze how firms renegotiate labor contracts to extract concessions from labor. While anecdotal evidence suggests that firms tend to renegotiate down wages in times of financial distress, there is no empirical evidence that documents such renegotiation, its determinants, and its magnitude. This paper attempts to fill this gap. Using a unique data set of airlines that includes detailed information on wages and pension plans we document an empirical link between airline financial distress, pension underfunding, and wage concessions.

NEGOTIATING WITH LABOR UNDER FINANCIAL DISTRESS

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