Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor
University of Minnesota; National Bureau of Economic Research (NBER)
Ohio State University (OSU) - Fisher College of Business
University of Texas at Dallas
University of Texas at Dallas - Naveen Jindal School of Management
Charles A. Dice Center Working Paper No. 2012-25
Fisher College of Business Working Paper No. 2012-03-025
We investigate the impact of labor-force heterogeneity on asset prices in a neoclassical model. The negative firms’ hiring rate-expected stock return relation identified in previous studies should be steeper in industries that rely relatively more on high skill workers because it is more costly to replace a high skill than a low skill worker. Empirically, a long low hiring rate firms and short high hiring rate firms portfolio earns an average annual return of 8.6% in high skill industries, and only 0.9% in low skill industries. Additional empirical tests provide support for the models economic mechanism.
Number of Pages in PDF File: 60
Keywords: Labor Heterogeneity, Labor Skill, Labor Hiring, Investment, Stock Return Predictability, Cross-Sectional Asset Pricing, q-theory, Adjustment cost shocks
JEL Classification: E22, E23, E44, G12
Date posted: October 2, 2012 ; Last revised: July 20, 2016
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