4 April 2014 – 0000
Employment and Wage Insurance within Firms: Worldwide Evidence
We investigate the determinants of employment and wage insurance that firms offer to their employees against industry-level and idiosyncratic shocks. Using data on firms from 41 countries, we find that family firms provide more employment protection but less wage stability than non-family ones. Employment protection is priced: family firms pay a 5% lower average wage, controlling for country, industry and time effects. The additional protection offered by family firms is stronger, and the wage discount larger, the less generous the unemployment insurance system, indicating that firm-provided and government-provided employment insurance are substitutes. State-owned firms provide more employment stability than privately owned ones, and the same applies to business groups relative to standalone companies. The cross-country evidence is broadly confirmed by Italian employee-employer matched data, which additionally show that family firms adjust to shocks mostly through the hiring margin, while separations are not responsive to shocks. The matched data also reveal that the real wage discount featured by family firms tend to disappear if one controls for workers unobserved characteristics though workers fixed effects, suggesting that the wage discount observed in family firms is at least in part due to lower unobserved workers’ skills in family firms.