Labor Force Telework Flexibility and Asset Prices: Evidence from the COVID-19 Pandemic

73 Pages Posted: 20 Sep 2020 Last revised: 7 May 2021

See all articles by Jack Y Favilukis

Jack Y Favilukis

University of British Columbia (UBC) - Division of Finance

Xiaoji Lin

University of Minnesota

Ali Sharifkhani

Northeastern University

Xiaofei Zhao

Georgetown University - Robert Emmett McDonough School of Business

Date Written: October 23, 2020

Abstract

We show that labor force telework flexibility (LFTF) is a first-order effect in accounting for the variations of asset prices and firm policies during the COVID-19 pandemic. Specifically, firms in high LFTF industries significantly outperform firms in low LFTF industries in stock returns. The positive LFTF-return relation extends to G7 countries and is stronger in countries with more severe pandemic. A decomposition analysis of the LFTF measure shows that the job characteristics associated with the central component of telework, information and communication technologies, are the main driving force of the result. A dynamic neoclassical model of firms operating multiple job tasks together with pandemic shocks captures the positive relationship between labor force flexibility and stock returns. The model mechanism highlights that i) job task flexibility is a key driving force of the cross-industry heterogeneity in firm value fluctuations, and ii) combining labor productivity (supply) and uncertainty shocks is crucial to generate the large drop and persistent recovery in firm value and output.

Keywords: Labor force telework, Pandemic, Return predictability, Multiple tasks, Labor shocks, Uncertainty shocks, Demand shocks

JEL Classification: E22, E23, E24, E32, G12, G17

Suggested Citation

Favilukis, Jack Y and Lin, Xiaoji and Sharifkhani, Ali and Zhao, Xiaofei, Labor Force Telework Flexibility and Asset Prices: Evidence from the COVID-19 Pandemic (October 23, 2020). Georgetown McDonough School of Business Research Paper No. 3693239, Available at SSRN: https://ssrn.com/abstract=3693239 or http://dx.doi.org/10.2139/ssrn.3693239

Jack Y Favilukis

University of British Columbia (UBC) - Division of Finance ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Xiaoji Lin (Contact Author)

University of Minnesota ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

Ali Sharifkhani

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Xiaofei Zhao

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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