CREAT: Census Research Exploration and Analysis Tool

Shareholder Power and the Decline of Labor

May 2022

Working Paper Number:

CES-22-17

Abstract

Shareholder power in the US grew over recent decades due to a steep rise in concentrated institutional ownership. Using establishment-level data from the US Census Bureau's Longitudinal Business Database for 1982-2015, this paper examines the impact of increases in concentrated institutional ownership on employment, wages, shareholder returns, and labor productivity. Consistent with theory of the firm based on conflicts of interests between shareholders and stakeholders, we find that establishments of firms that experience an increase in ownership by larger and more concentrated institutional shareholders have lower employment and wages. This result holds in both panel regressions with establishment fixed effects and a difference-in-differences design that exploits large increases in concentrated institutional ownership, and is robust to controls for industry and local shocks. The result is more pronounced in industries where labor is relatively less unionized, in more monopsonistic local labor markets, and for dedicated and activist institutional shareholders. The labor losses are accompanied by higher shareholder returns but no improvements in labor productivity, suggesting that shareholder power mainly reallocates rents away from workers. Our results imply that the rise in concentrated institutional ownership could explain about a quarter of the secular decline in the aggregate labor share.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the text, highlighting the most significant topics and trends. This approach not only enhances searchability but provides connections that go beyond potentially domain-specific author-defined keywords.
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earnings, corporation, takeover, employee, organizational, corporate, owner, ownership, merger, investor, shareholder, stock, equity, union, institutional, share

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Standard Industrial Classification, Securities and Exchange Commission, Federal Reserve Bank, Census Bureau Longitudinal Business Database, Current Population Survey, Longitudinal Business Database, Department of Economics, Census Industry Code, University of California Los Angeles, Cornell University, Boston College, Department of Labor, North American Industry Classification System, Herfindahl Hirschman Index, Census Bureau Disclosure Review Board, Herfindahl-Hirschman, Federal Statistical Research Data Center

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