Does Routine Labor Generate Routine Earnings?
50 Pages Posted: 12 Jun 2020 Last revised: 2 Feb 2022
Date Written: February 1, 2022
Prior research investigates how skills and attributes of upper management affect firm policies and performance, but the impact of workers outside of upper management has received little attention due to scarcity of data involving lower-level workers. Using a unique dataset, we find that a firm’s utilization of routine labor (defined as labor at greater risk of future automation) generates more persistent accruals and earnings. These results hold after controlling for other traditional measures of firm complexity and across both low- and high-tech firms, suggesting that firm complexity and technology are independent from the effects of routine labor. The effects of routine labor are more pronounced for firms where employees play a larger role in the production process, when managers have higher ability, when firm efficiency is higher, when firms build up inventory and therefore accrue a greater proportion of labor cost, and when the routine labor supply is less impacted by external labor economics (state minimum wage increases and union membership). The results are robust to controlling for other job characteristics (STEM positions and positions requiring a college education) and to orthogonalizing routine labor from firm capital intensity (PP&E, R&D, and CAPEX). Finally, routine labor utilization improves analyst forecast accuracy, suggesting that external stakeholders recognize and benefit from the enhanced predictability that routine labor brings. Taken together, our results suggest the characteristics of lower-level workers interact with those of firms, managers, and the economy to determine the persistence of accruals and earnings.
Keywords: routine, labor, automation, earnings, accruals, cash flow, persistence, predictability, analyst, forecast, occupations, managers, managerial ability
JEL Classification: G00, G30, M11, M41, M54
Suggested Citation: Suggested Citation