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Corporate Share Repurchase Policies and Labor Share
February 2025
Working Paper Number:
CES-25-14
Using census data, we investigate whether share repurchases are responsible for the fall in labor share in U.S. corporations. Recent legislation imposes taxes on share repurchases, motivated by the assertion that share repurchases have led to reduced labor payments. Using several empirical approaches, we find no evidence that increases in share repurchases contribute to decreases in labor share. Top share repurchasing firms since 1982 did not decrease labor share. We also rely on exogenous changes in share repurchases around EPS announcements to pinpoint causality. Policies aimed at improving labor share by discouraging share repurchases will likely not achieve their objectives.
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Grouped Variation in Factor Shares: An Application to Misallocation
August 2022
Working Paper Number:
CES-22-33
A striking feature of micro-level plant data is the presence of significant variation in factor cost shares across plants within an industry. We develop a methodology to decompose cost shares into idiosyncratic and group-specific components. In particular, we carry out a cluster analysis to recover the number and membership of groups using breaks in the dispersion of factor cost shares across plants. We apply our methodology to Chilean plant-level data and find that group-specific variation accounts for approximately one-third of the variation in factor shares across firms. We also study the implications ofthese groups in cost shares on the gains from eliminating misallocation. We place bounds on their importance and find that ignoring them can overstate the gains from eliminating misallocation by up to one-third.
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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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The Micro-Level Anatomy of the Labor Share Decline
March 2020
Working Paper Number:
CES-20-12
The labor share in U.S. manufacturing declined from 62 percentage points (ppts) in 1967 to 41 ppts in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppts during the same period. Using micro-level data, we document five salient facts: (1) since the 1980s, there has been a dramatic reallocation of value added toward the lower end of the labor share distribution; (2) this aggregate reallocation is not due to entry/exit, to 'superstars" growing faster or to large establishments lowering their labor shares, but is instead due to units whose labor share fell as they grew in size; (3) low labor share (LL) establishments benefit from high revenue labor productivity, not low wages; (4) they also enjoy a product price premium relative to their peers, pointing to a significant role for demand-side forces; and (5) they have only temporarily lower labor shares that rebound after five to eight years. This transient pattern has become more pronounced over time, and the dynamics of value added and employment are increasingly disconnected.
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Do Short-Term Incentives Affect Long-Term Productivity?
March 2020
Working Paper Number:
CES-20-10
Previous research shows that stock repurchases that are caused by earnings management lead to reductions in firm-level investment and employment. It is natural to expect firms to cut less productive investment and employment first, which could lead to a positive effect on firm-level productivity. However, using Census data, we find that firms make cuts across the board irrespective of plant productivity. This pattern seems to be associated with frictions in the labor market. Specifically, we find evidence that unionization of the labor force may prevent firms from doing efficient downsizing, forcing them to engage in easy or expedient downsizing instead. As a result of this inefficient downsizing, EPS-driven repurchases lead to a reduction in long-term productivity.
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The Cross-Section of Labor Leverage and Equity Returns*
January 2017
Working Paper Number:
CES-17-70
We study labor-induced operating leverage. Theoretically, we show that if labor markets are frictionless, two sufficient conditions for the existence of labor leverage are (a) relatively smooth wages and (b) a capital-labor elasticity of substitution strictly less than one. Our model provides theoretical support for the use of labor share'the ratio of labor expenses to value added'as a measure of labor leverage. We provide 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 economic shocks and have higher expected returns.
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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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Financial Frictions and Investment Dynamics in Multi-Plant Firms
October 2013
Working Paper Number:
CES-13-56
Using confidential Census data on U.S. manufacturing plants, we document that most of the dispersion in investment rates across plants occurs within rms instead of across firms. Between- firm dispersion is almost acyclical, but within- rm dispersion is strongly procyclical. To investigate the role of rms in the allocation of capital in the economy, we build a multi-plant model of the firm with frictions at both levels of aggregation. We show that external nancing constraints at the level of the rm can have important implications for plant-level investment dynamics. Finally, we present empirical evidence supporting the predictions of the model.
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IMPORTING, EXPORTING AND FIRM-LEVEL EMPLOYMENT VOLATILITY
June 2013
Working Paper Number:
CES-13-31
In this paper, we use detailed trade and transactions data for the U.S. manufacturing sector to empirically analyze the direction and magnitude of the association between firm-level exposure to trade and the volatility of employment growth. We find that, relative to purely domestic firms, firms that only export and firms that both export and import are less volatile, whereas firms that only import are more volatile. The positive relationship between importing and volatility is driven mainly by firms that switch in and out of importing. We also document a significant degree of heterogeneity across trading firms in terms of the duration of time and intensity with which firms trade, the number and type of products they trade and the number and characteristics of their trading partners. We find these factors to play an important role in explaining the differential impact of trading on employment volatility experienced by these firms.
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PRODUCTIVITY, RESTRUCTURING, AND THE GAINS FROM TAKEOVERS
April 2013
Working Paper Number:
CES-13-18
This paper investigates how takeovers create value. Using plant-level data, I show that acquirers increase targets' productivity through more efficient use of capital and labor. Acquirers significantly reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets'investment efficiency through better capital reallocation. Moreover, changes in productivity help explain the merging firms' announcement returns. The combined announcement returns are driven by improvements in target's productivity. Targets with greater productivity improvements receive higher premiums. These results provide some first empirical evidence on the relation between productivity and stock returns in the context of takeovers.
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