Which Workers Get Insurance within the Firm?
30 Pages Posted: 28 Jan 2012 Last revised: 13 Feb 2013
Date Written: November 14, 2011
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: Suggested Citation