Sharing risk within and across countries: the role of labor market institutions |
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Authors: | Anna Lo Prete |
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Affiliation: | University of Turin, Department of Economics and Statistics, Italy |
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Abstract: | This paper studies the effect of labor market institutions on within- and cross-country risk sharing, using a model of international trade in risky assets modified to include a subset of agents, labor-owners who do not access financial markets, and employment security provisions. Labor market, institutions, by promoting within-country risk-shifting arrangements between agents with or without, access to financial markets, reduce the fluctuations of non-tradable labor incomes and amplify the, fluctuations of capital incomes. Capital flows become more volatile across countries, and if the, configuration of labor markets differs across countries, capital-owners bear the burden of systematic, undiversifiable world aggregate uncertainty. |
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Keywords: | Risk sharing Labor markets Incomplete financial markets Employment protection |
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