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Risk Sharing in Labor Markets

Author

Listed:
  • Arne Bigsten
  • Paul Collier
  • Stefan Dercon
  • Marcel Fafchamps
  • Bernard Gauthier
  • Jan Willem Gunning
  • Abena Oduro
  • Remco Oostendorp
  • Cathy Pattillo
  • Mans S–derbom
  • Francis Teal
  • Albert Zeufack

Abstract

Empirical work in labor economics has focused on rent sharing as an explanation for the observed correlation 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, by contrast, 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. Copyright 2003, Oxford University Press.

Suggested Citation

  • Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Cathy Pattillo & Mans S–derbom & Francis Teal & Albert Zeufack, 2003. "Risk Sharing in Labor Markets," The World Bank Economic Review, World Bank, vol. 17(3), pages 349-366, December.
    • Handle: RePEc:oup:wbecrv:v:17:y:2003:i:3:p:349-366
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    Citations

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    Cited by:

    1. Harrison, Ann E. & Lin, Justin Yifu & Xu, Lixin Colin, 2014. "Explaining Africa’s (Dis)advantage," World Development, Elsevier, vol. 63(C), pages 59-77.
    2. Kar, Saibal & Majumdar, Devleena, 2015. "The wage response in exporting firms: evidence from machinery and chemical industries in India," MPRA Paper 103483, University Library of Munich, Germany.
    3. Wenjing Duan & Pedro S. Martins, 2022. "Rent sharing in China: Magnitude, heterogeneity and drivers," British Journal of Industrial Relations, London School of Economics, vol. 60(1), pages 176-219, March.
    4. Martins, Pedro S. & Esteves, Luiz A., 2006. "Is There Rent Sharing in Developing Countries? Matched-Panel Evidence from Brazil," IZA Discussion Papers 2317, Institute of Labor Economics (IZA).
    5. Gimpelson, V. & Kapeliushnikov, R. & Lukyanova, A. & Ryzhikova, Z. & Kulyaeva, G., 2010. "Ownership and Wage Differentiation in Russia," Journal of the New Economic Association, New Economic Association, issue 5, pages 48-72.
    6. Zenou, Yves & Jellal, Mohamed, 2005. "Ethnic Diversity, Market Structure and Risk Sharing in Developing Countries," CEPR Discussion Papers 5366, C.E.P.R. Discussion Papers.
    7. Lokshin, Michael & Gimpelson, Vladimir & Oshchepkov, Aleksey, 2012. "Explaining the Dynamics in Perceptions of Job Insecurity in Russia," IZA Discussion Papers 6422, Institute of Labor Economics (IZA).
    8. Marcel Fafchamps, 2009. "Human Capital, Exports, and Earnings," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 111-141, October.
    9. Marcel Fafchampsm & Måns Söderbom, 2006. "Wages and Labor Management in African Manufacturing," Journal of Human Resources, University of Wisconsin Press, vol. 41(2).
    10. Marcel Fafchamps & Måns Söderbom, 2004. "Wages and Labor Management in African Manufacturing," Development and Comp Systems 0409043, University Library of Munich, Germany.
    11. Marcel Fafchamps & Mans Söderbom & Najy Benhassine, 2009. "Wage Gaps and Job Sorting in African Manufacturing," Journal of African Economies, Centre for the Study of African Economies, vol. 18(5), pages 824-868, November.
    12. Li, Sanxi & Sun, Hailin & Wang, Tong & Yu, Jun, 2016. "Assortative matching and risk sharing," Journal of Economic Theory, Elsevier, vol. 163(C), pages 248-275.
    13. Guimbert, Stephane & Oostendorp, Remco, 2012. "Weathering the storm : responses by Cambodian firms to the global financial crisis," Policy Research Working Paper Series 6220, The World Bank.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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