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Bigsten, Arne
Collier, Paul
Dercon, Stefan
Fafchamps, Marcel
Gunning, Jan Willem
Oduro, Abena
Oostendorp, Remco
Pattillo, Cathy
Söderbom, Mans
Teal, Francis
Zeufack, Albert
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 03-077/2
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.
Risk sharing
labor markets
rent sharing
Document Type: 
Working Paper

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