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The Provision of Wage Insurance by the Firm: Evidence from a Longitudinal Matched Employer-Employee Dataset

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Author Info

  • Cardoso, Ana Rute

    ()
    (IAE Barcelona (CSIC))

  • Portela, Miguel

    ()
    (University of Minho)

Abstract

We evaluate the impact of product market uncertainty on workers wages, addressing the questions: To what extent do firms provide insurance to their workforce, insulating their wages from shocks in product markets? How does the amount of insurance provided vary with firm and worker attributes? We use a longitudinal matched employer-employee dataset of remarkable quality. The empirical strategy is based on Guiso et al. (2005). We first estimate dynamic models of sales and wages to retrieve consistent estimates of shocks to firms’ sales and to workers' earnings. We are then able to estimate the sensitivity of wages to permanent and transitory shocks to firm performance. Results point to the rejection of the full insurance hypothesis. Workers' wages respond to permanent shocks to firm performance, whereas they are not sensitive to transitory shocks. Managers are not fully insured against transitory shocks, while they receive the same protection against permanent shocks as workers in other occupations. Firms with higher variability in their sales, and those operating in different industries, offer more insurance against permanent shocks. Comparison with Guiso et al. (2005) indicates that Portuguese firms provide less insurance than Italian firms, corroborating evidence on the high degree of wage flexibility in Portugal.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1865.

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Length: 26 pages
Date of creation: Nov 2005
Date of revision:
Publication status: published as 'Micro Foundations for Wage Flexibility: Wage Insurance at the Firm Level' in: Scandinavian Journal of Economics, 2009, 111 (1), 29-50
Handle: RePEc:iza:izadps:dp1865

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Keywords: wage insurance; wage shocks; product market uncertainty; risk sharing;

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References

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Cited by:
  1. Horny, Guillaume & Mendes, Rute & van den Berg, Gerard J, 2009. "Job durations with worker and firm specific effects: MCMC estimation with longitudinal employer-employee data," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2009:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Fuss, Catherine, 2009. "What is the most flexible component of wage bill adjustment? Evidence from Belgium," Labour Economics, Elsevier, Elsevier, vol. 16(3), pages 320-329, June.
  3. Gábor Kátay, 2008. "Do Firms ProvideWage Insurance Against Shocks? – Evidence from Hungary," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2008/8, Magyar Nemzeti Bank (the central bank of Hungary).
  4. Strawczynski, Michel & Zeira, Joseph, 2009. "Cyclicality of Fiscal Policy: Permanent and Transitory Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7271, C.E.P.R. Discussion Papers.
  5. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 380, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Catherine Fuss & Ladislav Wintr, 2009. "Rigid labour compensation and flexible employment ? Firm-level evidence with regard to productivity for Belgium," Working Paper Research, National Bank of Belgium 159, National Bank of Belgium.

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