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Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor

Frederico Belo1; Jun Li2; Xiaoji Lin3; Xiaofei Zhao2

1 University of Minnesota and NBER · 2 University of Texas at Dallas · 3 Ohio State University

Review of Financial Studies 2017 open access

Previous studies have identified a negative relation between firms’ hiring rates and future stock returns in the cross-section. We document that this relation is significantly steeper in industries that rely relatively more on high-skill workers than low-skill workers. A long-short portfolio sorted on firm-level hiring rate earns an average annual return of 8.6% in high-skill industries, and only 0.9% in low-skill industries. Moreover, this pattern is not explained by the standard CAPM. These findings are consistent with a neoclassical model with labor force heterogeneity and labor market frictions if it is more costly to replace high-skill than low-skill workers. Received August 14, 2015; editorial decision December 31, 2016 by Editor Leonid Kogan.

DOI
10.1093/rfs/hhx070
Volume
30 (10)
Pages
3669-3709
Language
en
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