Capital Share Dynamics When Firms Insure Workers

Barney Hartman-Glaser, Hanno Lustig and Mindy X. Zhang
Additional contact information
Barney Hartman-Glaser: UCLA
Hanno Lustig: Stanford University
Mindy X. Zhang: University of TX

Research Papers from Stanford University, Graduate School of Business

Abstract: Although the aggregate capital share for U.S. firms has increased, the firm-level capital share has decreased on average. The divergence is due to the largest firms. While these mega-firms now produce a larger output share, their labor compensation has not increased proportionately. We develop a model in which firms insure workers against firm-specific shocks. More productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays the exit of less productive firms and increases the measure of mega-firms, raising the aggregate capital share and lowering it on average. We present evidence supporting this mechanism.

JEL-codes: E25 G31 G35 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3534

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