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Insurance Between Firms: The Role of Internal Labor Markets

Author

Listed:
  • Giacinta Cestone

    (Cass Business School, CSEF and ECGI)

  • Chiara Fumagalli

    (Università Bocconi, CSEF and CEPR)

  • Francis Kramaz

    (Crest, ENSAE and CEPR)

  • Giovanni Pica

    (Università degli Studi di Milano, LdA, CSEF and Centro Luca D’Agliano.)

Abstract

We explore how business groups use internal labor markets (ILMs) in response to changing economic conditions. We show that group-affiliated units faced with positive shocks to growth opportunities gain market share relying on their ILM to ensure swift hiring, especially of technical managers and skilled blue collar workers. A closer access to the group's human capital facilitates employee relocations in order to fully exploit growth opportunities. Adverse shocks affecting one unit in the organization increase workers' mobility to other units in the group rather than to external firms, with stricter employment protection causing an additional increase in internal mobility. Overall, ILMs provide an insurance mechanism between firms in a group, allowing such organizations to bypass hiring and firing frictions; they provide job stability to employees as a by-product.

Suggested Citation

  • Giacinta Cestone & Chiara Fumagalli & Francis Kramaz & Giovanni Pica, 2015. "Insurance Between Firms: The Role of Internal Labor Markets," CSEF Working Papers 386, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 22 Jan 2020.
  • Handle: RePEc:sef:csefwp:386
    Note: An earlier version of this paper was circulated under the title "(Why) Are Internal Labor Markets Active in French Business Groups".
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    Cited by:

    1. P. Charnoz & C. Lelarge & C. Trevien, 2016. "Communication Costs and the Internal Organization of Multi-Plant Businesses: Evidence from the Impact of the French High-Speed Rail," Documents de Travail de l'Insee - INSEE Working Papers g2016-02, Institut National de la Statistique et des Etudes Economiques.
    2. Nicodano, Giovanna & Regis, Luca, 2019. "A trade-off theory of ownership and capital structure," Journal of Financial Economics, Elsevier, vol. 131(3), pages 715-735.
    3. Marinescu, Ioana & Ouss, Ivan & Pape, Louis-Daniel, 2021. "Wages, hires, and labor market concentration," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 506-605.
    4. Gehrke, Britta & Maug, Ernst & Obernberger, Stefan & Schneider, Christoph, 2021. "Post-merger Restructuring of the Labor Force," IZA Discussion Papers 14409, Institute of Labor Economics (IZA).
    5. Johan Hombert & Adrien Matray, 2019. "Technology Boom, Labor Reallocation, and Human Capital Depreciation," Working Papers 260, Princeton University, Department of Economics, Center for Economic Policy Studies..
    6. Nimczik, Jan Sebastian, 2017. "Job Mobility Networks and Endogenous Labor Markets," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168147, Verein für Socialpolitik / German Economic Association.
    7. Michela Altieri & Giovanna Nicodano, 2020. "Survival and Pricing Puzzles," Carlo Alberto Notebooks 604, Collegio Carlo Alberto.
    8. 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.
    9. Giacinta Cestone & Chiara Fumagalli & Francis Kramaz & Giovanni Pica, 2015. "Insurance Between Firms: The Role of Internal Labor Markets," CSEF Working Papers 386, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 22 Jan 2020.
    10. Francesco D’Acunto & Geoffrey Tate & Liu Yang, 2020. "Entrepreneurial Teams: Diversity of Skills and Early-Stage Growth," Working Papers 20-45, Center for Economic Studies, U.S. Census Bureau.
    11. Sharon Belenzon & Victor Manuel Bennett & Andrea Patacconi, 2019. "Flexible Production and Entry: Institutional, Technological, and Organizational Determinants," NBER Working Papers 25659, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Business Groups; Human Capital; Labor Market Frictions; Internal Labor Markets.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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