Journal of Finance Vol. 74 No. 4 2019

Capital Share Dynamics When Firms Insure Workers

Barney Hartman-Glaser^1,2,3,4; Hanno Lustig^1,2,5,4; Mindy Z. Xiaolan^1,2,4,6

¹ Federal Reserve Bank of Atlanta · ² National Bureau of Economic Research · ³ University of California, Los Angeles · ⁴ Federal Reserve Bank of New York · ⁵ Palo Alto University · ⁶ The University of Texas at Austin

Abstract

Although the aggregate capital share of U.S. firms has increased, capital share at the firm‐level has decreased. This divergence is due to mega‐firms that produce a larger output share without a proportionate increase in labor compensation. We develop a model in which firms insure workers against firm‐specific shocks, with more productive firms allocating more rents to shareholders, while less productive firms endogenously exit. Increasing firm‐level risk delays exit and increases the measure of mega‐firms, raising (lowering) the aggregate (average) capital share. An increase in the level of rents magnifies this effect. We present evidence that supports this mechanism.

DOI

10.1111/jofi.12773

Volume

74

Issue

4

Pages

1707-1751

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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