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Long-term Risk-Sharing Wage Contracts in an Economy Subject to Permanent and Temporary Shocks

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  • Gamber, Edward N

Abstract

This article develops and tests an implication of risk shifting in labor market impl icit contracts. A two-period implicit contract model is presented. Th e optimal contract, in the face of bankruptcy constraints, calls for a real wage that responds asymmetrically to permanent and temporary s hocks to the firm's revenue function. In particular, the real wage re sponds more to a permanent shock than to a temporary shock of the sam e size. This implication is tested on twelve four-digit Standard Indu strial Classification code industries. Eleven of the twelve industrie s sampled show evidence that supports the asymmetric wage response im plication. Copyright 1988 by University of Chicago Press.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jlabec:v:6:y:1988:i:1:p:83-99
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    Cited by:

    1. Andrew Ellul & Marco Pagano & Fabiano Schivardi, 2014. "Employment and Wage Insurance within Firms - Worldwide Evidence," EIEF Working Papers Series 1402, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2017.
    2. Roberto Marfè, 2015. "Income Insurance and the Equilibrium Term-Structure of Equity," Carlo Alberto Notebooks 407, Collegio Carlo Alberto.
    3. Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 964, European Central Bank.
    4. 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.
    5. 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.
    6. Jonathan B. Berk & Richard Stanton & Josef Zechner, 2010. "Human Capital, Bankruptcy, and Capital Structure," Journal of Finance, American Finance Association, vol. 65(3), pages 891-926, June.
    7. Miguel Portela & Ana Rute Cardoso, 2005. "The provision of wage insurance by the firm: evidence from a longitudinal matched employer-employee dataset," NIPE Working Papers 17/2005, NIPE - Universidade do Minho.
    8. 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.
    9. Roberto Marfè, 2015. "Labor Rigidity and the Dynamics of the Value Premium," Carlo Alberto Notebooks 429, Collegio Carlo Alberto.

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