Labour market rigidities and international risk sharing across OECD countries |
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Authors: | Jarko Fidrmuc Neil Foster Johann Scharler |
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Institution: | a Zeppelin University, Am Seemooser Horn 20, 88045 Friedrichshafen, Germany;b CESifo Munich, Germany;c Comenius University Bratislava, Slovakia;d The Vienna Institute for International Economic Studies (wiiw), Rahlgasse 3, A-1060 Vienna, Austria;e Universtiy of Linz, Department of Economics, Altenberger Strasse 69, A-4040 Linz, Austria |
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Abstract: | In this paper we examine the role of labour market rigidities in the context of international consumption risk sharing. Stronger labour market regulation may make it easier to borrow against future income, thus allowing shocks to be smoothed to a greater extent. In addition, rigid labour markets may help to enforce implicit contracts that shift risk from employees to owners of firms, who, in turn, may diversify risk internationally. Using data for 19 OECD countries we show that labour market rigidities significantly increase consumption correlations and reduce the exposure to country-specific shocks. These results suggest that labour market rigidities improve the international sharing of consumption risks by fostering a more efficient intra-national allocation of risk. |
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Keywords: | Risk sharing Employment protection Consumption correlations |
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