EconPapers    
Economics at your fingertips  
 

The Cross-Section of Labor Leverage and Equity Returns

Andres Donangelo, Francois Gourio (), Matthias Kehrig and Miguel Palacios
Additional contact information
Miguel Palacios: Federal Reserve Bank of Chicago

No WP-2017-22, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Using a standard production model, we demonstrate theoretically that, even if labor is fully flexible, it generates a form of operating leverage if (a) wages are smoother than productivity and (b) the capital-labor elasticity of substitution is strictly less than one. Our model supports using labor share–the ratio of labor expenses to value added–as a proxy for labor leverage. We show evidence for conditions (a) and (b), and we demonstrate the economic significance of labor leverage: High labor-share firms have operating profits that are more sensitive to shocks, and they have higher expected asset returns.

Keywords: Labor leverage; labor mobility; labor supply; wage; productivity (search for similar items in EconPapers)
JEL-codes: J20 J22 J24 J62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm
Date: 2017-09-04
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.chicagofed.org/~/media/publications/wo ... 17/wp2017-22-pdf.pdf Full text (application/pdf)

Related works:
Journal Article: The cross-section of labor leverage and equity returns (2019) Downloads
Working Paper: The Cross-Section of Labor Leverage and Equity Returns* (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:wp-2017-22

Ordering information: This working paper can be ordered from
http://www.chicagofe ... ation_order_form.cfm

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Bernie Flores ().

 
Page updated 2019-11-18
Handle: RePEc:fip:fedhwp:wp-2017-22