Do Firms ProvideWage Insurance Against Shocks? – Evidence from Hungary
AbstractIn this paper I address the question to what extent wages are affected by product market uncertainty. Implicit contract models imply that it is Pareto optimal for risk neutral firms to provide insurance to risk averse workers against shocks. Using matched employer-employee dataset, I adopted the estimation strategy proposed by Guiso et al. (2005) to evaluate wage responses to both permanent and transitory shocks in Hungary and compared my results to similar studies on Italian and Portuguese datasets. I found that firms do insure workers against product market uncertainties, but the magnitude of the wage response differs depending on the nature of the shock. Broadly speaking, the wage response to permanent shocks is twice as high as the response to transitory shocks. Comparing my results to the two other studies, the main difference lies in the elasticity of wages to transitory shocks. Unlike these previous findings, my results show that full insurance to transitory shocks is rejected.
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Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2008/8.
Length: 28 pages
Date of creation: 2008
Date of revision:
product market uncertainty; risk sharing; wage insurance; optimal wage contract; matched employer-employee data.;
Other versions of this item:
- Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 0964, European Central Bank.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-14 (All new papers)
- NEP-BEC-2009-02-14 (Business Economics)
- NEP-IAS-2009-02-14 (Insurance Economics)
- NEP-LAB-2009-02-14 (Labour Economics)
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