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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
    DOI: 10.1086/298176
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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. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Roberto Marfè, 2015. "Labor Rigidity and the Dynamics of the Value Premium," Carlo Alberto Notebooks 429, Collegio Carlo Alberto.
    11. Roberto Marfè, 2017. "Income Insurance and the Equilibrium Term Structure of Equity," Journal of Finance, American Finance Association, vol. 72(5), pages 2073-2130, October.
    12. Yoav Friedmann, 2016. "The Information Technology Industries: Employees, Wages And Dealing With Shocks," Israel Economic Review, Bank of Israel, vol. 14(1), pages 97-132.
    13. Beaver, William & Cascino, Stefano & Correia, Maria & McNichols, Maureen, 2018. "Bankruptcy in groups," LSE Research Online Documents on Economics 118925, London School of Economics and Political Science, LSE Library.
    14. Kátay, Gábor, 2008. "Do firms provide wage insurance against shocks? Evidence from Hungary," Working Paper Series 964, European Central Bank.
    15. Lopamudra Banerjee, 2021. "Natural hazard, employment uncertainty, and the choice of labor contracts," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(2), pages 227-252, April.

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