Risk Sharing in Labor Markets |
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| Authors: | Bigsten Arne; Collier Paul; Dercon Stefan; Fafchamps Marcel; Gauthier Bernard; Gunning Jan Willem; Oduro Abena; Oostendorp Remco; Pattillo Cathy; Soderbom Mans; Teal Francis; Zeufack Albert |
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| Institution: | Arne Bigsten is with Göteborg University; Paul Collier, Stefan Dercon, Marcel Fafchamps, Mans Söderbom, and Francis Teal are with the University of Oxford; Bernard Gauthier is with École des Hautes Études Commerciales, Montreal; Jan Willem Gunning and Remco Oostendorp are with the Free University, Amsterdam; Abena Oduro is with the Center for Policy Analysis, Accra, Ghana; Cathy Pattillo is with the International Monetary Fund; and Albert Zeufack is with the World Bank. |
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| Abstract: | Empirical work in labor economics has focused on rent sharingas an explanation for the observed correlation between wagesand profitability. The alternative explanation of risk sharingbetween workers and employers has not been tested. Using a uniquepanel data set for four African countries, we find strong evidenceof risk sharing. Workers in effect offer insurance to employers:when firms are hit by temporary shocks, the effect on profitsis cushioned by risk sharing with workers. Rent sharing is asymptom of an inefficient labor market. Risk sharing, by contrast,can be seen as an efficient response to missing markets. Ourevidence suggests that risk sharing accounts for a substantialpart of the observed effect of shocks on wages. |
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