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Cited by 53Labor market dynamics and wage inequalityEconomic theories and modelsGlobal trade and economics

Productivity Shocks, Long-Term Contracts, and Earnings Dynamics

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Balke, Neele, Lamadon, Thibaut·2022·American Economic Review
DOI 10.1257/aer.20161622
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Abstract

This paper examines how employer- and worker-specific productivity shocks transmit to earnings and employment. We develop an equilibrium search model and characterize the optimal contract offered by firms. Risk-neutral firms provide partial insurance against shocks to risk-averse workers and offer contingent contracts, where payments are backloaded in good times and frontloaded in bad times. The model is estimated on matched employer-employee data from Sweden. Firms absorb persistent worker and firm shocks, with respective passthrough values of 26 and 10 percent. We evaluate the effects of redistributive policies and find that 30 percent of government insurance is undone by crowding out firm insurance. (JEL D86, H23, J24, J31, J41, J62)

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  • Balke and Lamadon (2022) estimate pass-through rates of 26% for worker-specific and 10% for firm-specific productivity shocks using matched employer-employee data from Sweden.

    “For example, Balke and Lamadon (2022) estimate pass-through rates of 26% for worker-specific and 10% for firm-specific productivity shocks using matched employer-employee data from Sweden.”

    From Still Waters, Rapid Currents: Early Labor Market Transformation under Generative AI (2025) · cites this paper as Balke and Lamadon (2022)

    The Abstract states that the model uses matched employer–employee data from Sweden. The Introduction and 'Decomposing earnings variances' section give the preferred pass-through estimates as 27% for worker shocks and 11% for firm shocks, not the claimed 26% and 10%. Page numbers were not available in our copy. (LLM, conf=0.90)

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Cited by

Sorted by citations

Authors
Balke, N., & Lamadon, T.
Affiliations
University of Chicago (US)
Venue
American Economic Review
Publisher
American Economic Association
Published
2022-07-01
Volume
112
Issue
7
Pages
2139-2177
ISSN
0002-8282 (ISSN-L)
DOI
10.1257/aer.20161622
OpenAlex
W4226038371
Cited by
53
References
0
Citations by year
2026: 10 · 2025: 10 · 2024: 11 · 2023: 11 · 2022: 5 · 2021: 1 · 2020: 2 · 2019: 1 · 2018: 2
FWCI
7.44
Type
journal article
Language
en
Open access
Locations
  • American Economic Review (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • Econstor (Econstor) (submittedVersion)
Funders
  • National Science Foundation (1658920)
  • Institutet för arbetsmarknads- och utbildningspolitisk politisk utvärdering
  • Economic and Social Research Council
Topics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
  • Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Global trade and economics
Keywords
productivity shocks, long-term employment contracts, earnings dynamics, contingent contracts, risk-averse workers, public insurance, crowding out, redistribution

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