When firms choose staffing levels under demand uncertainty, any staffing level implies a level of expected temporarily idle labor ( extit{hoarded labor}). However, hoarded labor has been difficult to measure, and we know little about its implications for corporate financial policies. This paper addresses these gaps by (i) constructing a novel firm-level measure of hoarded labor from German administrative employment data and firms’ use of short-time work, and (ii) formalizing and testing a extit{labor-hoarding channel of risk management}. The idea is that while hoarding labor may be highly profitable during periods of high demand, it also raises the wage bill during periods of low demand and, taken together, thus amplifies cash flow volatility. Risk-averse firms may respond by cutting back risk exposure along other dimensions. We focus on one risk-reduction margin—unhedged foreign exchange (FX) risk—which is a major business risk for the small to medium-sized export-oriented German firms in our sample and must be disclosed in their annual reports. In line with the model, we show that firms that hoard more labor bear less unhedged FX risk. Using instruments based on occupation-specific hiring and training frictions, we provide causal evidence that labor hoarding influences FX hedging decisions.