Which Workers Get Insurance within the Firm?

30 Pages Posted: 28 Jan 2012 Last revised: 13 Feb 2013

See all articles by David Lagakos

David Lagakos

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Guillermo Ordoñez

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 14, 2011

Abstract

Industry-level time series data suggest that low-skilled workers get less insurance within the firm than high-skilled workers. In particular, wages respond relatively more to productivity shocks in low-skilled industries than high-skilled industries. Our theory is that low-skilled workers get relatively less insurance from their firms because they have relatively lower displacement costs. Under limited commitment, lower displacement costs make the workers’ outside options more attractive, and hence decrease the amount of risk sharing sustainable within the firm. Evidence on average displacement costs by industry support the theory’s predictions.

Keywords: insurance within the firm, risk sharing, limited commitment, displacement costs, wage smoothing, wage rigidity

JEL Classification: D21, E32, J24, J41

Suggested Citation

Lagakos, David and Ordoñez, Guillermo, Which Workers Get Insurance within the Firm? (November 14, 2011). Available at SSRN: https://ssrn.com/abstract=1992749 or http://dx.doi.org/10.2139/ssrn.1992749

David Lagakos (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

National Bureau of Economic Research (NBER) ( email )

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Guillermo Ordoñez

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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