Labor Links and Shock Transmissions

70 Pages Posted: 25 May 2018 Last revised: 20 Oct 2019

See all articles by Yukun Liu

Yukun Liu

University of Rochester - Simon Business School

Xi Wu

Haas School of Business, University of California Berkeley

Date Written: October 1, 2018

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

Suggested Citation

Liu, Yukun and Wu, Xi, Labor Links and Shock Transmissions (October 1, 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=3175958 or http://dx.doi.org/10.2139/ssrn.3175958

Yukun Liu (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Xi Wu

Haas School of Business, University of California Berkeley ( email )

United States

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