Risk Sharing in Labour Markets

Tinbergen Institute Discussion Paper No. 03-077/2

35 Pages Posted: 18 Nov 2003

See all articles by Arne Bigsten

Arne Bigsten

University of Gothenburg

Paul Collier

University of Oxford - Blavatnik School of Government

Stefan Dercon

University of Oxford - Department of Economics

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Bernard Gauthier

Ecole des Hautes Etudes Commerciales (HEC) Montreal

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Abena Oduro

Centre for Policy Analysis (CEPA)

Remco Oostendorp

Vrije Universiteit; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); University of Oxford - Centre for the Study of African Economies (CSAE)

Catherine A. Pattillo

International Monetary Fund (IMF) - Research Division

Francis Teal

University of Oxford - Department of Economics

Måns Söderbom

University of Oxford - Department of Economics

Albert Zeufack

World Bank

Date Written: September 2003

Abstract

Empirical work in labour economics has focused on rent sharing as an explanation for the observed correlation in cross-sections between wages and profitability. The alternative explanation of risk sharing between workers and employers has not been tested. Using a unique panel data set for four African countries we find strong evidence of risk sharing. Workers in effect offer insurance to employers: when firms are hit by temporary shocks the effect on profits is cushioned by risk sharing with workers. Rent sharing is a symptom of an inefficient labor market. Risk sharing, however, can be seen as an efficient response to missing markets. Our evidence suggests that risk sharing accounts for a substantial part of the observed effect of shocks on wages.

JEL Classification: J31, O12, J341

Suggested Citation

Bigsten, Arne and Collier, Paul and Dercon, Stefan and Fafchamps, Marcel and Gauthier, Bernard and Gunning, Jan Willem and Oduro, Abena and Oostendorp, Remco and Pattillo, Catherine and Teal, Francis and Soderbom, Mans and Zeufack, Albert, Risk Sharing in Labour Markets (September 2003). Tinbergen Institute Discussion Paper No. 03-077/2. Available at SSRN: https://ssrn.com/abstract=455880 or http://dx.doi.org/10.2139/ssrn.455880

Arne Bigsten (Contact Author)

University of Gothenburg ( email )

Box 640
SE 405 30 Gothenburg
Sweden

HOME PAGE: http://www.hgu.gu.se/item.aspx?id=2619

Paul Collier

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

Stefan Dercon

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
44 1865 271084 (Phone)
44 1865 271094 (Fax)

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Bernard Gauthier

Ecole des Hautes Etudes Commerciales (HEC) Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+ 310 20 444 6141 (Phone)
+ 310 20 444 6004 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Abena Oduro

Centre for Policy Analysis (CEPA) ( email )

P. O. Box 19010
No.11 Dr. Amilcar Cabral Road
Accra-North
Ghana
(233-21)779364 (Phone)
(233-21)773670 (Fax)

Remco Oostendorp

Vrije Universiteit ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

University of Oxford - Centre for the Study of African Economies (CSAE) ( email )

Oxford OX1 3UL
United Kingdom

Catherine Pattillo

International Monetary Fund (IMF) - Research Division ( email )

700 19th Street NW
Washington, DC 20431
United States

Francis Teal

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Mans Soderbom

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44-(0)1865 271084 (Phone)
+44-(0)1865 281447 (Fax)

Albert Zeufack

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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