Capital Share Dynamics When Firms Insure Workers

Barney Hartman-Glaser, Hanno Lustig and Mindy Xiaolan

No 22651, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Although the aggregate capital share of U.S. firms has increased, the firm-level capital share of a typical U.S. firm has decreased. This divergence is due to mega-firms that now produce a larger output share without a proportionate increase in labor compensation. We develop a model in which firms insure workers against firm-specific shocks, where more productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays exit and increases the measure of mega-firms, which raises the aggregate capital share while lowering the average firm's capital share. An increase in the level of rents quantitatively magnifies this effect. We present evidence supporting this mechanism.

JEL-codes: E25 G30 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-bec and nep-mac
Note: AP CF EFG
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Citations: View citations in EconPapers (13)

Published as BARNEY HARTMAN‐GLASER & HANNO LUSTIG & MINDY Z. XIAOLAN, 2019. "Capital Share Dynamics When Firms Insure Workers," The Journal of Finance, vol 74(4), pages 1707-1751.

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