Insurance Between Firms: The Role of Internal Labor Markets

Cestone, G., Fumagalli, C., Kramaz, F. & Pica, G. (2016). Insurance Between Firms: The Role of Internal Labor Markets (Report No. 489/2016). ECGI.

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We investigate how Internal Labor Markets (ILMs) allow organizations to accommodate shocks calling for costly labor adjustments. Using data on workers' mobility within French business groups, we find that adverse shocks affecting affiliated firms boost the proportion of workers redeployed to other group units rather than external firms. This effect is stronger when labor regulations are stricter and destination-firms are more efficient or enjoy better growth opportunities. Affiliated firms hit by positive shocks rely on the ILM for new hires, especially high-skilled workers. Overall, ILMs emerge as a co-insurance mechanism within organizations, providing job stability to employees as a by-product.

Item Type: Monograph (Working Paper)
Additional Information: This paper can be downloaded without charge from: © Giacinta Cestone, Chiara Fumagalli, Francis Kramarz and Giovanni Pica 2016. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Uncontrolled Keywords: Internal Labor Markets, Organizations, Business Groups
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions: Cass Business School > Faculty of Finance

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