Systematic Labor Income Risk, Firm Insurance, and the Financial Behavior of Households

61 Pages Posted: 27 Dec 2022 Last revised: 9 Mar 2024

See all articles by Fabio Braggion

Fabio Braggion

Tilburg University - Tilburg University School of Economics and Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Giuseppe Floccari

Tilburg University - Department of Finance; Banca d'Italia

Jens Soerlie Kvaerner

Tilburg University

Date Written: December 23, 2022

Abstract

We develop a methodology to estimate the sensitivity of household income to business cycle fluctuations. The sensitivity estimate is the product of the systematic risk borne by the firm and a passthrough coefficient. The passthrough coefficient determines the share of a systematic shock the firm transfers to its employees through wage adjustments. We apply this methodology to an administrative dataset that covers the Dutch population between 2005 and 2020. Our central finding is that firms partially insure workers. On average, firms transfer about 60% of their systematic shocks to wages, with middle-aged, educated individuals being more insured and temporary workers being the least insured. In the population, the variation in passthrough ranges between some workers being fully insured and others insuring the firm. Households more exposed to business cycle risk perceive their income as more cyclical and they are less likely to buy a house and hold risky financial assets.

Keywords: Income risk, portfolio choice, income expectations, causal effects

JEL Classification: G11, G51, E21

Suggested Citation

Braggion, Fabio and Floccari, Giuseppe and Soerlie Kvaerner, Jens, Systematic Labor Income Risk, Firm Insurance, and the Financial Behavior of Households (December 23, 2022). Available at SSRN: https://ssrn.com/abstract=4311104 or http://dx.doi.org/10.2139/ssrn.4311104

Fabio Braggion

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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

Giuseppe Floccari (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Banca d'Italia ( email )

Via Nazionale 91
Rome, 00184
Italy

Jens Soerlie Kvaerner

Tilburg University ( email )

Warandelaan 2
Tilburg, -- 4818HK
Norway
40242704 (Phone)
0364 (Fax)

HOME PAGE: http://www.jenskvaerner.com/

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