Do Firms Shield Employees from Risk Shocks? Empirical Evidence from China

This study investigates firm-employee risk-sharing through implicit employment insurance mechanisms within China’s labor market. Leveraging data from Chinese A-share listed firms and employing Double Machine Learning (DML), we document that firms provide significant insurance against unpredictable risk shocks. Specifically, firms offer nearly full insulation against transitory shocks but only partial insurance against persistent ones. Heterogeneity analyses reveal distinct patterns in this risk-sharing. Managers receive substantially stronger job security guarantees compared to rank-and-file employees. Contrary to conventional wisdom, state-owned enterprises do not provide greater employment stability than private firms. Furthermore, family firms offer weaker insurance, attributable to selective corporate social responsibility fulfillment. Critically, employees implicitly accept wage discounts as premiums in exchange for this job security. Although employment insurance strengthens employment rigidity, wage discounts allow firms to flexibly adjust labor input, so they do not bear additional risk from ensuring employees’ job stability. We further identify a significant substitution effect between public unemployment insurance and firm-provided employment insurance: reducing firms’ unemployment insurance contribution burdens incentivizes them to enhance insurance, thereby strengthening employment stability.