Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/86106 
Year of Publication: 
2003
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 03-077/2
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
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.
Subjects: 
Risk sharing
labor markets
rent sharing
insurance
JEL: 
J31
O12
Document Type: 
Working Paper

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