Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2003-09-29 Number: 03-077/2 Author-Name: Arne Bigsten Author-Workplace-Name: Göteborg University Author-Name: Paul Collier Author-Workplace-Name: University of Oxford Author-Name: Stefan Dercon Author-Workplace-Name: University of Oxford Author-Name: Marcel Fafchamps Author-Workplace-Name: University of Oxford Author-Name: Jan Willem Gunning Author-Email: jgunning@feweb.vu.nl Author-Workplace-Name: Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam Author-Name: Abena Oduro Author-Workplace-Name: Center for Policy Analysis, Accra, Ghana Author-Name: Remco Oostendorp Author-Email: roostendorp@feweb.vu.nl Author-Workplace-Name: Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam Author-Name: Cathy Pattillo Author-Workplace-Name: International Monetary Fund, Washington Author-Name: Mans Söderbom Author-Workplace-Name: University of Oxford Author-Name: Francis Teal Author-Workplace-Name: University of Oxford Author-Name: Albert Zeufack Author-Workplace-Name: World Bank, Washington Title: Risk Sharing in Labour Markets 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. Classification-JEL: J31; O12 Keywords: Risk sharing; labor markets; rent sharing; insurance File-Url: https://papers.tinbergen.nl/03077.pdf File-Format: application/pdf File-Size: 336878 bytes Handle: RePEc:tin:wpaper:20030077