Work

Insurance within the Firm

Year: 2005

Type: article

Abstract: We evaluate the allocation of risk between firms and their workers using matched employer‐employee panel data. Unlike previous contributions, this paper focuses on idiosyncratic shocks to the firm, which are the correct empirical counterpart of the theoretical notion of diversifiable risk. We allow for both temporary and permanent shocks to output and find that firms absorb temporary fluctuations fully but insure workers against permanent shocks only partially. Risk‐sharing considerations can account for about 15 percent of overall earnings variability, the remainder originating from idiosyncratic shocks to individual workers. Our welfare calculations indicate that firms are an important vehicle of insurance provision.

Source: Journal of Political Economy

DOI: 10.1086/432136

Authors: Luigi Guiso, Luigi Pistaferri, Fabiano Schivardi

Institutions: University of Sassari, Centre for Economic Policy Research, Stanford Institute for Economic Policy Research, Stanford University, Bank of Italy

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

Funders: Istituto Nazionale Previdenza Sociale, European Commission, Banca d'Italia, Stanford Institute for Economic Policy Research