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Sharing risk within and across countries: the role of labor market institutions

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  • Lo Prete, Anna

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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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 449-461

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Handle: RePEc:eee:ecosys:v:37:y:2013:i:3:p:449-461

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Keywords: Risk sharing; Labor markets; Incomplete financial markets; Employment protection;

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  1. Bertola, Giuseppe & Lo Prete, Anna, 2013. "Finance, Governments, and Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9338, C.E.P.R. Discussion Papers.
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