Abstract

http://ssrn.com/abstract=2155295
 


 



Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor


Frederico Belo


University of Minnesota; National Bureau of Economic Research (NBER)

Xiaoji Lin


Ohio State University (OSU) - Fisher College of Business

Jun Li


University of Texas at Dallas

Xiaofei Zhao


University of Texas at Dallas - Jindal School of Management

August 13, 2015

Charles A. Dice Center Working Paper No. 2012-25
Fisher College of Business Working Paper No. 2012-03-025

Abstract:     
We introduce labor-force heterogeneity in a neoclassical investment model. In the baseline model, we highlight the fact that labor adjustment costs are higher for high skilled workers than for low skilled workers. The model predicts that the negative hiring-expected return relation should be steeper in industries that rely more on high skilled workers because firm's hiring responds less elastically to changes in the discount rate when labor adjustment costs are higher. In an extended version of the model we show that the previous prediction also holds in the presence of additional sources of labor-force heterogeneity such as higher wage rigidity of high skilled workers. Empirically, we document that the negative hiring-expected return relation is between 1.7 and 3.2 times larger in industries that rely more on high skilled workers, than in industries that rely more on low skilled workers. This result is robust: it holds in U.S data, in international data, across sub-samples, and in both firm-level and portfolio-level analyses. Taken together, our results show that labor-force heterogeneity affects asset prices in financial markets.

Number of Pages in PDF File: 55

Keywords: Labor Skill, Labor Hiring, Investment, Stock Return Predictability, Cross-Sectional Asset Pricing, q-theory

JEL Classification: E22, E23, E44, G12


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Date posted: October 2, 2012 ; Last revised: August 21, 2015

Suggested Citation

Belo, Frederico and Lin, Xiaoji and Li, Jun and Zhao, Xiaofei, Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor (August 13, 2015). Charles A. Dice Center Working Paper No. 2012-25; Fisher College of Business Working Paper No. 2012-03-025. Available at SSRN: http://ssrn.com/abstract=2155295 or http://dx.doi.org/10.2139/ssrn.2155295

Contact Information

Frederico Belo (Contact Author)
University of Minnesota ( email )
19th Avenue South
Minneapolis, MN 55455
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Xiaoji Lin
Ohio State University (OSU) - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
Jun Li
University of Texas at Dallas ( email )
800 West Campbell Road, SM 31
Richardson, TX 75080
United States
972-883-4422 (Phone)
Xiaofei Zhao
University of Texas at Dallas - Jindal School of Management ( email )
800 W Campbell Rd SM31
Richardson, TX 75080
United States
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