IDEAS home Printed from https://ideas.repec.org/a/bla/scandj/v111y2009i1p29-50.html
   My bibliography  Save this article

Micro Foundations for Wage Flexibility: Wage Insurance at the Firm Level

Author

Listed:
  • Ana Rute Cardoso
  • Miguel Portela

Abstract

To what extent do firms insulate their workers' wages from fluctuations in product markets? Which firm and worker attributes are associated with wage flexibility at the micro level? We first rely on Guiso, Pistaferri and Schivardi (2005) to estimate dynamic models of sales and wages, finding that in Portugal, workers' wages respond to permanent shocks on firm performance, as opposed to transitory shocks. We then explore the factors associated with wage flexibility, finding that collective bargaining and minimum wages are associated with higher wage insurance by the firm, while the threat of firm bankruptcy reduces it. Managers receive less protection against permanent shocks than other workers.

Suggested Citation

  • Ana Rute Cardoso & Miguel Portela, 2009. "Micro Foundations for Wage Flexibility: Wage Insurance at the Firm Level," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 29-50, March.
  • Handle: RePEc:bla:scandj:v:111:y:2009:i:1:p:29-50
    DOI: 10.1111/j.1467-9442.2008.01553.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9442.2008.01553.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1467-9442.2008.01553.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
    2. Nickell, Stephen J & Wadhwani, Sushil, 1990. "Insider Forces and Wage Determination," Economic Journal, Royal Economic Society, vol. 100(401), pages 496-509, June.
    3. Paul J. Devereux, 2005. "Do Employers Provide Insurance against Low Frequency Shocks? Industry Employment and Industry Wages," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 313-340, April.
    4. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-366, July.
    5. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2005. "Insurance within the Firm," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1054-1087, October.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Teulings, Coen N., 1997. "A new theory of corporatism and wage setting," European Economic Review, Elsevier, vol. 41(3-5), pages 659-669, April.
    8. John A. Abowd & Thomas Lemieux, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 983-1014.
    9. Weiss, Yoram, 1984. "Wage Contracts When Output Grows Stochastically: The Roles of Mobility Costs and Capital Market Imperfections," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 155-173, April.
    10. Gordon, Donald F, 1974. "A Neo-Classical Theory of Keynesian Unemployment," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 431-459, December.
    11. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
    12. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 541-554.
    13. Gamber, Edward N, 1988. "Long-term Risk-Sharing Wage Contracts in an Economy Subject to Permanent and Temporary Shocks," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 83-99, January.
    14. Weinberg, Bruce A, 2001. "Long-Term Wage Fluctuations with Industry-Specific Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 231-264, January.
    15. Louis N. Christofides & Andrew J. Oswald, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 985-1002.
    16. Faggio, Guilia & Nickell, Stephen, 2005. "The responsiveness of wages to labour market conditions in the UK," Labour Economics, Elsevier, vol. 12(5), pages 685-696, October.
    17. Holmstrom, Bengt, 1981. "Contractual Models of the Labor Market," American Economic Review, American Economic Association, vol. 71(2), pages 308-313, May.
    18. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    19. Holzer, Harry J & Montgomery, Edward B, 1993. "Asymmetries and Rigidities in Wage Adjustments by Firms," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 397-408, August.
    20. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
    21. John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348-352, May.
    22. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
    23. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-688, August.
    24. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
    25. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    26. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cardoso, Ana Rute & Portela, Miguel, 2005. "The Provision of Wage Insurance by the Firm: Evidence from a Longitudinal Matched Employer-Employee Dataset," IZA Discussion Papers 1865, Institute of Labor Economics (IZA).
    2. N. Guertzgen, 2014. "Wage insurance within German firms: do institutions matter?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 177(2), pages 345-369, February.
    3. Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 964, European Central Bank.
    4. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    5. Nicole Guertzgen, 2009. "Rent‐sharing and Collective Bargaining Coverage: Evidence from Linked Employer–Employee Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 323-349, June.
    6. Chinhui Juhn & Kristin McCue & Holly Monti & Brooks Pierce, 2018. "Firm Performance and the Volatility of Worker Earnings," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 99-131.
    7. Anabela Carneiro & Pedro Portugal, 2008. "Market power, dismissal threat, and rent sharing: The role of insider and outsider forces in wage bargaining," International Journal of Manpower, Emerald Group Publishing, vol. 29(1), pages 30-47, March.
    8. Bell, Brian & Bukowski, Pawel & Machin, Stephen, 2018. "Rent Sharing and Inclusive Growth," CEPR Discussion Papers 13408, C.E.P.R. Discussion Papers.
    9. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2005. "Wages and International Rent Sharing in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 73-84, February.
    10. Christian Calmès, 2003. "Poignée de main invisible et persistance des cycles économiques : une revue de la littérature," Staff Working Papers 03-40, Bank of Canada.
    11. Calmès, Christian, 2003. "La poignée de main invisible et la persistance des cycles d’affaires : un survol," L'Actualité Economique, Société Canadienne de Science Economique, vol. 79(4), pages 563-581, Décembre.
    12. John W. Budd & Jozef Konings & Matthew J. Slaughter, "undated". "International Rent Sharing in Multinational Firms," Working Papers 0202, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
    13. H. Naci Mocan & Deborah Viola, 1997. "The Determinants of Child Care Workers' Wages and Compensation: Sectoral Differences, Human Capital, Race, Insiders and Outsiders," NBER Working Papers 6328, National Bureau of Economic Research, Inc.
    14. Christian Calmès & Raymond Théoret, 2009. "The Non-Convexity Issues in a Limited-Commitment Economy," RePAd Working Paper Series UQO-DSA-wp012009, Département des sciences administratives, UQO.
    15. Piekkola, Hannu & Haaparanta, Pertti, 1999. "Liquidity Constraints Faced by Firm and Employment," Discussion Papers 695, The Research Institute of the Finnish Economy.
    16. Luigi Guiso & Luigi Pistaferri, 2020. "The insurance role of the firm," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(1), pages 1-23, March.
    17. Cahuc, Pierre & Gianella, Christian & Goux, Dominique & Zylberberg, Andre, 2002. "Equalizing Wage Differences and Bargaining Power: Evidence from a Panel of French Firms," CEPR Discussion Papers 3510, C.E.P.R. Discussion Papers.
    18. Kerndler, Martin, 2019. "Size and persistence matter: Wage and employment insurance at the micro level," ECON WPS - Working Papers in Economic Theory and Policy 04/2019, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
    19. Sabien Dobbelaere, 2001. "Insider Power and Wage Determination in Bulgaria An Econometric Investigation," LICOS Discussion Papers 11101, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    20. Simon Franklin & Julien Labonne, 2019. "Economic Shocks and Labor Market Flexibility," Journal of Human Resources, University of Wisconsin Press, vol. 54(1), pages 171-199.
    21. Yicheng Wang, 2015. "Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks?," 2015 Meeting Papers 1189, Society for Economic Dynamics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scandj:v:111:y:2009:i:1:p:29-50. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.