Insurance Between Firms: The Role of Internal Labor Markets

Giacinta Cestone (), Chiara Fumagalli (), Francis Kramaz and Giovanni Pica
Additional contact information
Giacinta Cestone: Cass Business School, CSEF and ECGI
Chiara Fumagalli: Università Bocconi, CSEF and CEPR
Francis Kramaz: Crest, ENSAE and CEPR

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We explore how business groups use internal labor markets (ILMs) in response to changing economic conditions. We show that group-affiliated units faced with positive shocks to growth opportunities gain market share relying on their ILM to ensure swift hiring, especially of technical managers and skilled blue collar workers. A closer access to the group's human capital facilitates employee relocations in order to fully exploit growth opportunities. Adverse shocks affecting one unit in the organization increase workers' mobility to other units in the group rather than to external firms, with stricter employment protection causing an additional increase in internal mobility. Overall, ILMs provide an insurance mechanism between firms in a group, allowing such organizations to bypass hiring and firing frictions; they provide job stability to employees as a by-product.

Keywords: Business Groups; Human Capital; Labor Market Frictions; Internal Labor Markets. (search for similar items in EconPapers)
JEL-codes: G30 J20 L22 (search for similar items in EconPapers)
Date: 2015-01-22, Revised 2020-01-22
New Economics Papers: this item is included in nep-hrm, nep-lab and nep-lma
Note: An earlier version of this paper was circulated under the title "(Why) Are Internal Labor Markets Active in French Business Groups".
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Citations: View citations in EconPapers (3)

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http://www.csef.it/WP/wp386.pdf (application/pdf)

Related works:
Working Paper: Insurance Between Firms: The Role of Internal Labor Markets (2020)
Working Paper: Insurance Between Firms: The Role of Internal Labor Markets (2017)
Working Paper: Insurance Between Firms: The Role of Internal Labor Markets (2016)
Working Paper: Insurance Between Firms: The Role of Internal Labor Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:386

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