Labor Mobility: Implications for Asset Pricing

Abstract:     
Labor mobility is the flexibility of workers to walk away from an industry in response to better opportunities. I develop a model in which labor flows make bad times worse for shareholders who are left with capital that is less productive. The model shows that firms face greater operating leverage by providing flexibility to mobile workers. I construct an empirical measure of labor mobility consistent with the model and document an economically significant cross-sectional relation between mobility, operating leverage, and stock returns. I find that firms in mobile industries earn returns over 5% higher than those in less mobile industries.

Measure of labor mobility used in the paper is available at the University of Texas website.

Number of Pages in PDF File: 39

Keywords: Asset Pricing, Labor Mobility, Expected Returns, Cross-Section

JEL Classification: G12

Accepted Paper Series