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Do Firms Provide Wage Insurance against Shocks?

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  • Gábor Kátay

Abstract

Implicit contract models imply that it is Pareto optimal for risk-neutral firms to provide insurance to risk-averse workers against shocks. Using a matched employer–employee dataset, I evaluate wage responses to both permanent and transitory shocks in Hungary, and compare my results to similar studies on Italian, Portuguese, German, and French datasets. I find that the magnitude of the wage response differs depending on the nature of the shock. Broadly speaking, the wage response to permanent shocks is twice the size of the response to transitory shocks. Unlike previous findings, my results show that full insurance against transitory shocks is rejected.

Suggested Citation

  • Gábor Kátay, 2016. "Do Firms Provide Wage Insurance against Shocks?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(1), pages 105-128, January.
    • Handle: RePEc:bla:scandj:v:118:y:2016:i:1:p:105-128
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    File URL: http://hdl.handle.net/10.1111/sjoe.12128
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    Cited by:

    1. Andrew Ellul & Marco Pagano & Fabiano Schivardi, 2018. "Employment and Wage Insurance within Firms: Worldwide Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 31(4), pages 1298-1340.
    2. 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.
    3. Maibom, Jonas & Vejlin, Rune Majlund, 2021. "Passthrough of Firm Performance to Income and Employment Stability," IZA Discussion Papers 14131, Institute of Labor Economics (IZA).
    4. Jan Babecky & Kamil Galuscak & Diana Zigraiova, 2017. "Wage Dynamics and Financial Performance: Evidence from Czech Firms," Working Papers 2017/14, Czech National Bank.
    5. 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.
    6. Pagano, Marco, 2020. "Risk Sharing Within the Firm: A Primer," Foundations and Trends(R) in Finance, now publishers, vol. 12(2), pages 117-198, October.
    7. Reizer, Balázs, 2022. "Employment and Wage Consequences of Flexible Wage Components," Labour Economics, Elsevier, vol. 78(C).

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