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The insurance role of the firm

Luigi Guiso and Luigi Pistaferri
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Luigi Pistaferri: Stanford University

No 2001, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: We review the recent literature on the risk sharing role of the firm. We provide a framework for studying risk sharing between workers and firm owners vis-à-vis firms specific shocks of different nature.We show how this framework can be taken to the data to provide estimates of the extent of insurance within the firm. Estimates from a large number of Western countries strongly support the view that in capitalist economies the firm is a large albeit far from complete wage insurance instrument. We quantify the welfare benefits of firm-provided wage insurance, show evidence on how workers react to firms shockspassed through wages, and discuss the future role of the firm as a wage insurance provider.

Pages: 24 pages
Date: 2020, Revised 2020-01
New Economics Papers: this item is included in nep-bec, nep-ias and nep-rmg
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