Labor Links and Shock Transmissions

Abstract

We construct a time-varying network of labor competitors for all U.S. public companies. We show the importance of this network for transmitting labor and industry shocks. There are three main findings. First, the overlap between firms' labor competitors and product market rivals is less than 20 percent. Second, firm returns strongly respond to both the contemporaneous and lagged labor market shocks proxied by returns of the labor competitors. A long-short strategy exploiting the lagged response generates an average annualized excess return of 9.36 percent. Third, shocks to an industry can affect firms outside the industry through the labor network.

Keywords: Labor Competitors, Network, Skill Demand, Job Postings, Predictable Returns

JEL Classification: G01, M2, D22, E24, J23, J24