Martin Souchier

Insurance Inside and Outside the Firm

This paper presents a new model with optimal wage contracts, assets, and search frictions in general equilibrium. Contracts are subject to hidden search and limited commitment on the side of workers and firms, and workers can trade risk-free bonds subject to borrowing constraints. In this model, firms take advantage of workers’ access to financial markets when they design how wages change with tenure and after productivity shocks. The optimal contract implies a pass-through of productivity shocks to wages and a marginal propensity to consume that are consistent with the data. The insurance that workers receive outside the firm crowds out the insurance that they receive inside the firm: when workers can trade assets, firms choose to pass productivity shocks through to wages significantly more. Similarly, policies improving the ability of workers to self-insure are twice less effective at reducing consumption risk because of the endogenous response of optimal wage contract.

The Pass-through of Productivity Shocks to Wages and the Cyclical Competition for Workers

Using French matched employer-employee data, I document that after positive firm-level productivity shocks, the wages of stayers rise and job-to-job transitions fall. However, after positive sectoral productivity shocks, wages rise significantly more and job-to-job transitions rise. To explain these differences, I build a model with dynamic wage contracts subject to two-sided limited commitment and imperfect information and in which sectoral productivity shocks generate cyclical competition for workers. After a positive firm-level shock, a firm increases its wages to reduce the quit rate of its workers. This increase is limited because workers are risk-averse and value insurance against shocks and because there is no increase in the cyclical competition from other firms. In contrast, after positive sectoral shocks, the cyclical competition for workers heats up and workers become more likely to switch jobs. In response, all firms increase their wages more aggressively to retain them. I find that firing costs play a new role when contracts are endogenous: by enhancing the commitment power of firms, they allow workers to receive more insurance against negative shocks.

Environmentally Adjusted Multifactor Productivity: Methodology and Empirical Results for OECD and G20 Countries, with Miguel Cárdenas Rodríguez and Ivan Haščič, Ecological Economics, 153, 2018

Environmental Policy Design, Innovation and Efficiency Gains in Electricity Generation with Nick Johnstone, Shunsuke Managi, Miguel Cárdenas Rodríguez, Ivan Haščič and Hidemichi Fujii, Energy Economics, 63, 2017