We analyze the effect of local-level labor market concentration on wages. Using plant-level U.S. Census data over the period 1977'2009, we find that: (1) local-level employer concentration exhibits substantial cross-sectional and time-series variation and increases over time; (2) consistent with labor market monopsony power, there is a negative relation between local-level employer concentration and wages that is more pronounced at high levels of concentration and increases over time; (3) the negative relation between labor market concentration and wages is stronger when unionization rates are low; (4) the link between productivity growth and wage growth is stronger when labor markets are less concentrated; and (5) exposure to greater import competition from China (the 'China Shock') is associated with more concentrated labor markets. These five results emphasize the role of local-level labor market monopsonies in influencing firm wage-setting.
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Shareholder Power and the Decline of Labor
May 2022
Working Paper Number:
CES-22-17
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.
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HUMAN CAPITAL LOSS IN CORPORATE BANKRUPTCY
July 2013
Working Paper Number:
CES-13-37
This paper quantifies the 'human costs of bankruptcy' by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau's LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.
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How Does Labor Market Size Affect Firm Capital Structure? Evidence from Large Plant Openings
November 2015
Working Paper Number:
CES-15-38
I examine how the labor market in which firms operate affects their capital structure decisions. Using the US Census Bureau data, I exploit a large plant opening as an abrupt increase in the size of a local labor market. I find that a new plant opening leads to a 2.6% to 3.9% increase in the debt-to-capital ratio of existing firms in the 'winner' county relative to the 'runner-up' choice. This result is consistent with larger labor markets making a job loss less costly, which in turn reduces indirect costs of financial distress. Moreover, this spillover effect is larger for firms 1) that have a larger fraction of employees in the affected county, 2) that employ the same type of workers as the new plant, and 3) that have larger unexploited benefits of debt.
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TRADE LIBERALIZATION AND LABOR SHARES IN CHINA
May 2014
Working Paper Number:
CES-14-24
We estimate the extent to which firms responded to tariff reductions associated with China's WTO entry by altering labor's share of value. Firm-level regressions indicate that firms in industries subject to tariff cuts raised labor's share relative to economy-wide trends, both through input choices and rent sharing. Labor's share of value is an estimated 12 percent higher in 2007 than it would be if tariffs had remained at their 1998 levels. There is significant variation across firms: the impact is larger where market access is better and it is influenced by union presence and state ownership.
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Employer Concentration and Labor Force Participation
March 2022
Working Paper Number:
CES-22-08
This paper examines the association between employer concentration and labor outcomes (labor force participation and employment). It uses restricted data from the U.S. Census Bureau's Longitudinal Business Database to estimate, at the county level, to what extent more concentrated labor markets have lower labor force participation rates and lower employment. The analysis also examines whether unionization rates and education levels mediate these associations.
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How Do Health Insurance Costs Affect Firm Labor Composition and Technology Investment?
September 2023
Working Paper Number:
CES-23-47
Employer-sponsored health insurance is a significant component of labor costs. We examine the causal effect of health insurance premiums on firms' employment, both in terms of quantity and composition, and their technology investment decisions. To address endogeneity concerns, we instrument for insurance premiums using idiosyncratic variation in insurers' recent losses, which is plausibly exogenous to their customers who are employers. Using Census microdata, we show that following an increase in premiums, firms reduce employment. Relative to higher-income coworkers, lower-income workers see a larger increase in their likelihood of being separated from their jobs and becoming unemployed. Firms also invest more in information technology, potentially to substitute labor.
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The Real Effects of Hedge Fund Activism: Productivity, Risk, and Product Market Competition
July 2012
Working Paper Number:
CES-12-14
This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention, we also find that efficient capital redeployment is an important channel via which activists create value. Furthermore, our analyses demonstrate that measuring performance using the Compustat data is likely to lead to a downward bias because target firms experiencing greater improvement post-intervention are also more likely to disappear from the Compustat database. Finally, consistent with recent work in asset-pricing linking firm investment decisions and expected returns, we show how changes to target firms' productivity are associated with a decline in systemic risk, particularly in competitive industries.
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Manufacturing Plants' Use of Temporary Workers: An Analysis Using Census Micro Data
December 2008
Working Paper Number:
CES-08-40
Using plant-level data from the Plant Capacity Utilization (PCU) Survey, we examine how manufacturing plants' use of temporary workers is associated with the nature of their output fluctuations and other plant characteristics. We find that plants tend to hire temporary workers when their output can be expected to fall, a result consistent with the notion that firms use temporary workers to reduce costs associated with dismissing permanent employees. In addition, we find that plants whose future output levels are subject to greater uncertainty tend to use more temporary workers. We also examine the effects of wage and benefit levels for permanent workers, unionization rates, turnover rates, seasonal factors, and plant size and age on the use of temporary workers; based on our results, we discuss various views of why firms use temporary workers.
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Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership
December 2009
Working Paper Number:
CES-09-44
How employee share ownership plans (ESOPs) affect employee compensation and shareholder value depends on the size. Small ESOPs, defined as those controlling less than 5% of outstanding shares, benefit both workers and shareholders, implying positive productivity gains. However, the effects of large ESOPs on worker compensation and shareholder value are more or less neutral, suggesting little productivity gains. These differential effects appear to be due to two non-value-creating motives specific to large ESOPS: (1) To form management-worker alliances ala Pagano and Volpin (2005), wherein management bribes workers to garner worker support in thwarting hostile takeover threats and (2) To substitute wages with ESOP shares by cash constrained firms. Worker compensation increases when firms under takeover threats adopt large ESOPs, but only if the firm operates in a non-competitive industry. The effects on firm valuation also depend on the strength of product market competition: When the competition is strong (weak), most of the productivity gains accrue to employees (shareholders). Competitive industry also implies greater job mobility within the industry, enabling workers to take a greater portion of productivity gains.
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Fraudulent Financial Reporting and the Consequences for Employees
March 2019
Working Paper Number:
CES-19-12
We examine employment effects, such as wages and employee turnover, before, during, and after periods of fraudulent financial reporting. To analyze these effects, we combine U.S. Census data with SEC enforcement actions against firms with serious misreporting ('fraud'). We find compared to a matched sample that fraud firms' employee wages decline by 9% and the separation rate is higher by 12% during and after fraud periods while employment growth at fraud firms is positive during fraud periods and negative afterward. We discuss several reasons that plausibly drive these findings. (i) Frauds cause informational opacity, misleading employees to still join or continue to work at the firm. (ii) During fraud, managers overinvest in labor changing employee mix, and after fraud the overemployment is unwound causing effects from displacement. (iii) Fraud is misconduct; association with misconduct can affect workers in the labor market. We explore the heterogeneous effects of fraudulent financial reporting, including thin and thick labor markets, bankruptcy and non-bankruptcy firms, worker movements, pre-fraud wage levels, and period of hire. Negative wage effects are prevalent across these sample cuts, indicating that fraudulent financial reporting appears to create meaningful and negative consequences for employees possibly through channels such as labor market disruptions, punishment, and stigma.
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