Capital Share Dynamics When Firms Insure Workers

70 Pages Posted: 9 Jul 2016 Last revised: 17 Dec 2018

See all articles by Barney Hartman-Glaser

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2017

Abstract

Although the aggregate capital share of U.S. firms has increased, the firm-level capital share of a typical U.S. firm has decreased. This divergence is due to mega-firms that now produce a larger output share without a proportionate increase in labor compensation. We develop a model in which firms insure workers against firm-specific shocks, where more productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays exit and increases the measure of mega-firms, which raises the aggregate capital share while lowering the average firm's capital share. An increase in the level of rents quantitatively magnifies this effect. We present evidence supporting this mechanism.

Keywords: Idiosyncratic Risk, Selection, Capital Share, Labor Share, National Income Accounting, Selection

Suggested Citation

Hartman-Glaser, Barney and Lustig, Hanno N. and Xiaolan, Mindy Z., Capital Share Dynamics When Firms Insure Workers (October 1, 2017). Journal of Finance, Forthcoming, Stanford University Graduate School of Business Research Paper No. 16-35, Available at SSRN: https://ssrn.com/abstract=2807093 or http://dx.doi.org/10.2139/ssrn.2807093

Barney Hartman-Glaser

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Hanno N. Lustig (Contact Author)

Stanford Graduate School of Business ( email )

Stanford GSB
655 Knight Way
Stanford, CA California 94305-6072
United States
3108716532 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mindy Z. Xiaolan

University of Texas, Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

HOME PAGE: http://sites.google.com/view/mindyxiaolan

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