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Risk Sharing in Labour Markets

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Author Info
Arne Bigsten (Göteborg University)
Paul Collier (University of Oxford)
Stefan Dercon (University of Oxford)
Marcel Fafchamps (University of Oxford)
Jan Willem Gunning () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)
Abena Oduro (Center for Policy Analysis, Accra, Ghana)
Remco Oostendorp () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)
Cathy Pattillo (International Monetary Fund, Washington)
Mans Söderbom (University of Oxford)
Francis Teal (University of Oxford)
Albert Zeufack (World Bank, Washington)

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Abstract

Empirical work in labour economics has focused on rent sharing as an explanation for the observed correlation in cross-sections between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries we find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing, however, can be seen as an efficient response to missing markets. Our evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-077/2.

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Date of creation: 29 Sep 2003
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Handle: RePEc:dgr:uvatin:20030077

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Web page: http://www.tinbergen.nl/

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Related research
Keywords: Risk sharing; labor markets; rent sharing; insurance;

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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  1. Benhassine, Najy & Fafchamps, Marcel & Söderbom, Måns, 2006. "Wage Gaps and Job Sorting in African Manufacturing," CEPR Discussion Papers 6003, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Jellal, Mohamed & Zenou, Yves, 2005. "Ethnic Diversity, Market Structure and Risk Sharing in Developing Countries," CEPR Discussion Papers 5366, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Marcel Fafchamps & Måns Söderbom, 2004. "Wages and Labor Management in African Manufacturing," Development and Comp Systems 0409043, EconWPA. [Downloadable!]
    Other versions:
  4. Armando João Dalla Costa, 2005. "Sucessão E Sucesso Nas Empresas Familiares," Working Papers 0017, Universidade Federal do Paraná, Department of Economics. [Downloadable!]
  5. Pedro S. Martins & Luiz A. Esteves, 2008. "Is There Rent Sharing in Developing Countries? Matched-Panel Evidence from Brazil," Working Papers 14, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research. [Downloadable!]
    Other versions:
  6. Round, Jeffery I., 2007. "Globalization, Growth, Inequality and Poverty in Africa: A Macroeconomic Perspective," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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