Labor Costs and Investments in Human Capital

Posted: 4 Mar 2008

See all articles by Marta Ballester

Marta Ballester

Universidad de Malaga

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Nishi Sinha

Analysis Group

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This study examines the disclosure of labor-related costs by US firms, and estimates the proportion of these costs that are valued as an asset (human capital) by the market. Separate identification of labor-related costs in US financial reports is voluntary, and is made consistently only by about 10% of all US Compustat firms. The probability of disclosure is found to be positively related to firm size, labor intensity and membership in regulated industries and is inversely related to industry concentration. Using a modification of Ohlson's (1995) framework the study finds that on average about 16% of all such costs are valued by the market as an investment in human capital, and that this human capital asset amortizes at a rate of about 34% per year. Further, the human capital asset averages about 5% of the total market value of the firm and accounts for about 16% of the difference between market and book value. The ratio of the human capital asset to market value is found to be positively related to average salary paid to employees, operating uncertainty, and the ratio of labor expenses to sales, but inversely related to the firm size.

JEL Classification: M41, J20, J24

Suggested Citation

Ballester Casado, Marta and Livnat, Joshua and Sinha, Nishi, Labor Costs and Investments in Human Capital. Journal of Accounting, Auditing and Finance, Vol. 17, No. 4, 2002, Available at SSRN: or

Marta Ballester Casado

Universidad de Malaga ( email )

Malaga, Málaga 29004

Joshua Livnat

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)

Prudential Financial - Quantitative Management Associates ( email )

2 Gateway Center
6th Fl.
Newark, NJ 07102
United States

Nishi Sinha (Contact Author)

Analysis Group ( email )

111 Huntington Avenue
10th floor
Boston, MA 02199
United States
2025502040 (Phone)

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