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Insurance between Firms: The Role of Internal Labor Markets

Centro Studi Luca d'Agliano Development Studies Working Paper No. 397

63 Pages Posted: 11 Jan 2017

See all articles by Giacinta Cestone

Giacinta Cestone

Bayes Business School, City University London; ECGI

Chiara Fumagalli

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

Francis Kramarz

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Giovanni Pica

Idep, facoltà di economia; University of Milan - Department of Economics, Management and Quantitative Methods (DEMM); University of Milan - Centro Studi Luca d'Agliano (LdA); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2016

Abstract

We investigate how Internal Labor Markets (ILMs) allow organizations to accommodate shocks calling for costly labor adjustments. Using data on workers’ mobility within French business groups, we find that adverse shocks affecting affiliated firms boost the proportion of workers redeployed to other group units rather than external firms. This effect is stronger when labor regulations are stricter and destination-firms are more efficient or enjoy better growth opportunities. Affiliated firms hit by positive shocks rely on the ILM for new hires, especially high-skilled workers. Overall, ILMs emerge as a co-insurance mechanism within organizations, providing job stability to employees as a by-product.

Keywords: Internal Labor Markets, Organizations, Business Groups

JEL Classification: G30, L22, J08, J40

Suggested Citation

Cestone, Giacinta and Fumagalli, Chiara and Kramarz, Francis and Pica, Giovanni, Insurance between Firms: The Role of Internal Labor Markets (June 8, 2016). Centro Studi Luca d'Agliano Development Studies Working Paper No. 397, Available at SSRN: https://ssrn.com/abstract=2896921 or http://dx.doi.org/10.2139/ssrn.2896921

Giacinta Cestone

Bayes Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Chiara Fumagalli

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy
+39 02 5836 5311 (Phone)
+39 02 5836 5318 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Francis Kramarz

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

92245 Malakoff Cedex
France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Giovanni Pica (Contact Author)

Idep, facoltà di economia ( email )

Via Giuseppe Buffi 13
Lugano, TN Ticino 6900
Switzerland
+41586664784 (Phone)

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy

University of Milan - Centro Studi Luca d'Agliano (LdA) ( email )

Via P. Amedeo 34
Milano, Mi 20122
Italy

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

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