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Risk Sharing in Labour Markets

Listed author(s):
  • Arne Bigsten

    (Göteborg University)

  • Paul Collier

    (University of Oxford)

  • Stefan Dercon

    (University of Oxford)

  • Marcel Fafchamps

    (University of Oxford)

  • Jan Willem Gunning

    ()

    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Abena Oduro

    (Center for Policy Analysis, Accra, Ghana)

  • Remco Oostendorp

    ()

    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Cathy Pattillo

    (International Monetary Fund, Washington)

  • Mans Söderbom

    (University of Oxford)

  • Francis Teal

    (University of Oxford)

  • Albert Zeufack

    (World Bank, Washington)

Empirical work in labour economics has focused on rent sharing as an explanation for the observed correlation in cross-sections 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, however, 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.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-077/2.

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Date of creation: 29 Sep 2003
Handle: RePEc:tin:wpaper:20030077
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