Does Intergenerational Mobility Increase Corporate Profits?

37 Pages Posted: 17 Jul 2019

See all articles by James F. Albertus

James F. Albertus

Carnegie Mellon University - David A. Tepper School of Business

Michael Smolyansky

Board of Governors of the Federal Reserve System

Date Written: July 1, 2019

Abstract

We find that firms located in areas with higher intergenerational mobility are more profitable. Building off the work of Chetty and Hendren (2018a and 2018b) — who provide measures of intergenerational mobility for all commuting zones (essentially, metropolitan areas) within the U.S. — we are the first to show the positive link between intergenerational mobility and corporate profitability. Our regressions compare firms within the same industry at the same point in time and fully control for time-varying state-level shocks. As such, our findings cannot be explained by either differences in industry composition across localities or by variation in state-level economic conditions; nor can our results be explained by differences in firm characteristics or by local economic conditions. Rather, we present evidence for a human-capital-based explanation: areas with higher mobility do a better job in unlocking people’s innate talents, which in turn has a positive effect on the performance of firms headquartered in these locations. Our results therefore show that greater equality of opportunity is associated with increased corporate profitability.

Keywords: intergenerational mobility, corporate profitability, human capital

JEL Classification: J62, J24, G30, G32, R10

Suggested Citation

Albertus, James F. and Smolyansky, Michael, Does Intergenerational Mobility Increase Corporate Profits? (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3420225 or http://dx.doi.org/10.2139/ssrn.3420225

James F. Albertus (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Michael Smolyansky

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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