Insurance within the firm



Table 7

The sensitivity of earnings to value added shocks

The first row in Panel A reports the IV estimate of the sensitivity of wages to value added
shocks (bu for permanent shocks and bυ for transitory shocks). J-test is the test of overidentifying
restrictions. F-test is the test of joint insignificance of excluded instruments. E (∆ωyz'∆^>ijt-τ)
is an estimate of the autocovariance of wage shocks of order τ; E (∆εjt∆εjt-τ) an estimate of
the autocovariance of value added shocks of order τ; E (∆ω⅛'t∆εjt-τ) an estimate of the cross-
covariance of wage and value added shocks of order τ. σ^l, σ^, σ∣ and σjl are EWMD estimates
of the variances of value added permanent shocks, value added transitory shocks, wage permanent

shocks and wage transitory shocks, respectively. ρ is an estimate of the MA coefficient of earnings.

buσu
√B[(Δ¾∙t)2]


Asymptotic standard errors are reported in parenthesis. The Ratio is calculated as:
and measures the amount of earnings variability attributable to value added shocks.

Panel A

Permanent
shock

Transitory
shock

Sensitivity          0.0599       0.0072

(0.0154)         (0.0051)

J-test (р-value)     0.1161       0.3777

F-test (р-value)    <0.0001     <0.0001

Panel B

Moment

Estimate

Parameter

Estimate

E (∆ωijАш,i)

0.0139
(0.0004)

0.0229
(0.0035)

e (∆шŋ't∆cθijf_i)

-0.0055
(0.0003)

συ

0.0334
(0.0048)

E (A^ij't∆zjt)

0.0019
(0.0002)

σl

0.0058
(0.0015)

e (A^ij't∆εjt-1)

-0.0002

(0.0002)

σ

0.0034
(0.0011)

E (∆ε3 i∆ε, i)

0.0820
(0.0052)

ρ

-0.1606

(0.0863)

E (∆ε,∙ t∆ε3t-1)

-0.0310
(0.0039)

Ratio

0.0769

47



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