Wage insurance against short‐term sales changes

Abstract In this paper, I study how the wages of job‐stayers respond within the year to changes in firm sales, using quarterly matched employer–employee data from Hungary. The analysis compares firm‐specific and sectoral shocks with an instrumental variables strategy based on leave‐one‐out sectoral sales growth. Three main results emerge. Wages are almost fully insured against idiosyncratic firm shocks, with elasticities around 2%. In contrast, wages co‐move strongly with aggregate shocks: the elasticity with respect to sectoral sales changes is about 0.07, and even higher in manufacturing, construction and machine‐operator jobs. These results show that aggregate shocks pass through even on a short, quarterly time horizon, while firms provide insurance against firm‐specific shocks. This implies that changing macroeconomic or monetary conditions can affect wages even at the quarterly level.