Labor income risk is key to the welfare of most people and this
risk is mainly insured 'within the firm' and by public
institutions, rather than by financial markets. Risk Sharing within
the Firm: A Primer starts by asking why such insurance is provided
within the firm, and what determines its boundaries. It identifies
four main constraining factors: availability of a public safety
net, moral hazard on the employees' side, moral hazard on the
firms' side, and workers' wage bargaining power. These factors
explain three empirical regularities: family firms provide more
employment insurance than nonfamily firms; the former pay lower
real wages, and firms provide less employment insurance where
public unemployment benefits are more generous. This monograph also
explores the connection between risk sharing and firms' capital
structure. It concludes by showing that risk sharing within firms
has declined steadily in the last three decades, and by discussing
the financial, competitive, technological and institutional
developments that may have conjured this outcome.
General
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