Labor Market Agglomeration and Employee-Retention Policies

62 Pages Posted: 16 Jan 2020 Last revised: 2 Aug 2022

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance

Karin S. Thorburn

Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Emma Xu

University of New Mexico - Robert O. Anderson Schools of Management

Date Written: June 1, 2021

Abstract

We construct a measure of a firm’s exposure to labor market agglomeration in the locality—a measure we label LEO—and examine whether such exposure is a key factor in firms’ employee-related policies. We find that when LEO is high, firms grant more broad-based stock options, provide more employee-friendly work environment, and maintain financial flexibility. This relation is present only for high-skilled workers and stronger for firms investing in R&D. Our results show that firms strategically adopt the policies to retain employees who face better local opportunities in a large pooled market for their skills. Two quasi-natural experiments, the staggered adoption of the Inevitable Disclosure Doctrine and Hurricane Katrina, support a causal relation.

Keywords: Labor Force Composition, Labor Market Agglomeration, Stock Options, Corporate Social Responsibility, Working Conditions, Financing

JEL Classification: G32, J21, J33, J62, M14

Suggested Citation

John, Kose and Lee, Kyeong Hun and Thorburn, Karin S. and Xu, Emma, Labor Market Agglomeration and Employee-Retention Policies (June 1, 2021). Available at SSRN: https://ssrn.com/abstract=3511607 or http://dx.doi.org/10.2139/ssrn.3511607

Kose John (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Kyeong Hun Lee

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Karin S. Thorburn

Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
+4755959283 (Phone)

HOME PAGE: http://www.nhh.no/cv/thorburn

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Emma Xu

University of New Mexico - Robert O. Anderson Schools of Management ( email )

Albuquerque, NM 87131
United States

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