 Do firms provide wage insurance against shocks? Evidence from HungaryNo 964, Working Paper Series from European Central Bank Abstract: In this paper I address the question to what extent wages are affected by product market uncertainty. Implicit contract models imply that it is Pareto optimal for risk neutral firms to provide insurance to risk averse workers against shocks. Using matched employer-employee dataset, I adopted the estimation strategy proposed by Guiso et al. (2005) to evaluate wage responses to both permanent and transitory shocks in Hungary and compared my results to similar studies on Italian and Portuguese datasets. I found that firms do insure workers against product market uncertainties, but the magnitude of the wage response differs depending on the nature of the shock. Broadly speaking, the wage response to permanent shocks is twice as high as the response to transitory shocks. Comparing my results to the two other studies, the main difference lies in the elasticity of wages to transitory shocks. Unlike these previous findings, my results show that full insurance to transitory shocks is rejected. JEL Classification: C33, D21, J33, J41 Keywords: matched employer-employee data; optimal wage contract; product market uncertainty; risk sharing; wage insurance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2008964 Access Statistics for this paper More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC. |
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