Employment, Corporate Investment and Cash Flow Uncertainty
46 Pages Posted: 8 Sep 2011 Last revised: 2 May 2013
Date Written: April 26, 2013
The effect of uncertainty on equilibrium wage rates causes uncertainty to have a negative impact on marginal q. In turn, uncertainty reduces corporate investment and employment. Using a novel firm-level measure of cash flow uncertainty, we find empirically that uncertainty has a strong negative impact on corporate employment and investment in both tangible and intangible assets. Economically, if uncertainty were to revert to pre-crisis levels, employment would increase by 3.35 million jobs, investment in tangibles would increase by 1.54%, and investment in intangibles would increase by1.29%. Our findings are robust to alternative measures of uncertainty and different estimation techniques.
Keywords: corporate investment, uncertainty, intangible capital, employment
JEL Classification: E22, E24, G31
Suggested Citation: Suggested Citation