Labor Market Power and Firm Financial Flexibility

40 Pages Posted: 20 Mar 2018 Last revised: 21 Apr 2018

See all articles by Alan Kwan

Alan Kwan

The University of Hong Kong

Yukun Liu

Yale University, Department of Economics, Students

Date Written: March 19, 2018

Abstract

Using a novel database representing the near-universe of US online job postings, we examine the role of firms’ labor market power on financial flexibility and corporate policy. Validating our measure, within a county-occupation, high labor market power is associated with lower posted wages. The measure is associated with lower cash holdings and market beta, and higher Tobin’s Q and profitability. The relation is stronger in industries that are labor intensive, which have high worker mobility, and low rates of unionization and attributable to market-share over high skill jobs. High labor market power firms react less to passages of enforcement of non-compete laws, which we use as a difference-in-differences strategy. The result is consistent with the idea that high labor market power firms are less exposed to shocks in the labor market.

Keywords: Labor Market Power, Firm Financial Flexibility and Corporate Policy, Vacancy Postings

JEL Classification: J01, G30

Suggested Citation

Kwan, Alan and Liu, Yukun, Labor Market Power and Firm Financial Flexibility (March 19, 2018). Available at SSRN: https://ssrn.com/abstract=3144130 or http://dx.doi.org/10.2139/ssrn.3144130

Alan Kwan

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Yukun Liu (Contact Author)

Yale University, Department of Economics, Students ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

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