National Income Accounting When Firms Insure Workers

Mindy X. Zhang, Hanno Lustig and Barney Hartman-Glaser
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Mindy X. Zhang: University of Texas at Austin
Hanno Lustig: Stanford GSB
Barney Hartman-Glaser: University of California at Los Angeles

No 1625, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We analyze national income accounting in an equilibrium model of industry dynamics with long-term contracts between risk-averse workers and heterogeneous firms. In our model, firms insure workers against firm-specific productivity shocks. We use this model as a laboratory for analyzing the impact of firm-level risk on the stationary distribution of rents. An increase in firm-level risk always increases the aggregate capital share in the economy, but may lower the average firm's capital share. Because of selection, the aggregate capital share reported in national income accounts produces a biased estimate of ex ante profitability of firms which determines compensation. Workers effectively pay a larger insurance premium to the owners of capital.

Date: 2016
New Economics Papers: this item is included in nep-bec and nep-dge
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