Abstract :
Industry-leveltimeseriesdatasuggestthatlow-skilledworkersgetlessinsurance
withinthefirmthanhigh-skilledworkers.Inparticular,wagesrespondrelativelymore
to productivityshocksinlow-skilledindustriesthanhigh-skilledindustries.Ourtheory
is thatlow-skilledworkersgetrelativelylessinsurancefromtheirfirmsbecausethey
have relativelylowerdisplacementcosts.Underlimitedcommitment,lowerdisplace-
mentcostsmaketheworkers’outsideoptionsmoreattractive,andhencedecreasethe
amountofrisksharingsustainablewithinthefirm.Evidenceonaveragedisplacement
costs byindustrysupportthetheory’spredictions
