Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor

Frederico Belo, Jun Li, Xiaoji Lin and Xiaofei Zhao

The Review of Financial Studies, 2017, vol. 30, issue 10, 3669-3709

Abstract: Previous studies have identified a negative relation between firms’ hiring rates and future stock returns in the cross-section. We document that this relation is significantly steeper in industries that rely relatively more on high-skill workers than low-skill workers. A long-short portfolio sorted on firm-level hiring rate earns an average annual return of 8.6% in high-skill industries, and only 0.9% in low-skill industries. Moreover, this pattern is not explained by the standard CAPM. These findings are consistent with a neoclassical model with labor force heterogeneity and labor market frictions if it is more costly to replace high-skill than low-skill workers. Received August 14, 2015; editorial decision December 31, 2016 by Editor Leonid Kogan.

JEL-codes: E23 E24 G12 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (50)

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