Higher Labor Share Research Articles

Labor leverage and firm risk: Evidence from Korea

Labor expenditure can induce a form of operating leverage at the firm level due to the relative smoothness of wages compared to output. This study investigates the effect of labor-induced operating leverage (i.e., labor leverage) measured by labor share on a firm's risk dimensions in the Korean stock market. We find that labor share increases both equity returns and the default probability at the firm level. Moreover, the amplification of liability risk translates into the riskiness of a firm's assets proxied by asset volatility. Finally, we show that the value premium is stronger for high labor share firms, suggesting a new channel of the book-to-market effect in the cross-section of returns.

What are the causal conditions that lead to high or low environmental performance? A worldwide assessment

This study focuses on causal conditions that lead to high or low environmental performance (EPI) using fuzzy-set qualitative comparative analysis for 156 countries in 2018. Data for the EPI, economic growth, labor share of GDP, political freedom, the role of women, press freedom, corruption, and urbanization were used. Research findings allow us to conclude that no individual causal condition meets the necessary condition (thresholds) for high or low EPI. Five sufficient configurations for high EPI were found: (i) high GDP per capita is sufficient for high EPI; (ii) highly urbanized countries where corruption is absent; (iii) urbanized countries that protect individual rights and liberties and women's economic opportunities; (iv) high labor share of GDP coupled with the protection of individual freedom and women's economic rights; and (v) countries with high individual and press freedom where corruption is absent. Four sufficient configurations for low EPI were found: (vi) lack of protection of women's economic rights; (vii) lack of press freedom; (viii) low GDP per capita and high corruption rates, and urbanization as a peripheral condition; and (ix) low GDP per capita and high corruption rates and labor as a peripheral condition. Policymakers must acknowledge that there are many paths to improve environmental performance, contingent on the country's initial environmental development level.

Geopolitical Risk and Investment

AbstractUsing a news‐based index of geopolitical risk (GPR), we document a strong negative relationship between firm‐level corporate investment and GPR. When the GPR index doubles, next‐quarter investment declines by 14% of its sample mean. The effect is more pronounced for firms with more irreversible investment or higher market power, confirming the real options theory. However, the effect is less significant for firms with a stronger ability to substitute labor for capital, a higher labor‐to‐capital ratio, or a higher labor share, supporting the convex return theory. Overall, our results suggest that the real options channel dominates the Oi–Hartman–Abel effect.

The Influence of Capital Deepening on Regional Economic Development Gap: The Intermediary Effect of the Labor Income Share

At the same time as economic development, the imbalance problem in regional economic development is prominent, which hinders sustainable economic development, especially in China. Explaining the causes of unbalanced regional economic development is an important scientific problem in current economic research. Here, this study takes China as the empirical research area and uses China’s inter-provincial panel data to deeply analyze the impact of capital deepening on the regional economic development gap. As indicated by this study, after a series of potential factors (e.g., industrial proportion, foreign direct investment, and per capita GDP) of the regional development gap are controlled, the capital deepening measured using perpetual inventory can have a strong explanatory power for the regional development gap, i.e., the greater the value of capital deepening, the more significant the regional development gap will be. According to the above conclusion, the effect arising from capital deepening on the regional development gap is still significant, even after the Soviet Aid Project is employed as the current instrumental variable of capital deepening, as well as after the data from the world sample are estimated The study further finds that capital deepening does not directly affect the regional development gap but indirectly affects the regional development gap by affecting the labor income share. Therefore, a higher labor share can narrow the regional development gap.

Productivity Dispersion, Between‐Firm Competition, and the Labor Share

I study the effect of labor market imperfections on the labor share in a tractable model that emphasizes the interaction between productivity dispersion and firm competition for workers. I calibrate the model using administrative data covering the universe of firms in Canada from 2000 to 2015. As in the data, most firms have a high labor share, yet the aggregate labor share is low due to the disproportionate effect of a small fraction of large, highly productive firms. I find that a rise in the dispersion of firm productivity causes the aggregate labor share to decline in favor of firm profits. The mechanism is that productivity dispersion effectively shields high‐productivity firms from wage competition. Regression evidence from cross‐country and cross‐industry data supports both the model prediction and mechanism.

Profitability of Groundnut Production Under Smallholder Farmers in Metekel Zone North Western Ethiopia

Groundnut is South America origin introduced in to Ethiopia in 1920s which is now grown over all warm climate low land part of the country and used as staple food and valuable cash crops for millions of smallholder Ethiopian farmers. This research aims to provide farm level evidence that could guide informed production decision making. The research tried to identified and estimated of cost component and profitability of groundnut production under smallholder farmers. Enterprise budget and descriptive statistics methods were used to analyze data collected from field records of 80 selected groundnut producer smallholder farmers from two districts. The descriptive statistics revealed that harvesting and pilling of groundnut takes higher labor share and female labor contribution is almost similar with male labor in groundnut production process. The enterprise budget analysis revealed that sample smallholder farmers earned net gross margin of ETB 15,761.26 per hectare from groundnut production. Moreover the benefit cost ratio 2.29 indicated that for every one ETB incurred cost, farmers could earn a benefit of ETB 2.29. In addition to this, the sensitivity analysis indicated that profitability of groundnut is more sensitive to increasing of input price and decreasing of output price than to decreasing input price and increasing of output price simultaneously. Therefore, this paper concluded that groundnut production in Metekel zone of Benshagul gumuz is profitable enterprise. This paper suggests that variety improvement and market linkage between producers and agro-industries would be enhanced production and profitability of groundnut under smallholder farmers. Keywords: Groundnut, Production, Cost, Enterprise budget analysis, profitability and Sensitivity analysis DOI: 10.7176/RHSS/11-15-01 Publication date: October 31 st 2021

Productive knowledge, economic sophistication, and labor share

We present economic sophistication, the ability to produce complex products, as a potential determinant of labor share. Economic sophistication requires specific skills and tacit knowledge embedded in labor. It increases the bargaining power of workers, resulting in a higher labor share. We are the first to present economic sophistication as a potential determinant of labor share. We employ a fixed-effect model using panel data from 98 countries observed from 1970–2015 to find that economic sophistication has a positive and statistically significant effect on labor share. This positive effect applies to both OECD and non-OECD countries. A one standard deviation increase in economic sophistication increases labor share by about 3 percent, which corresponds to about 1.6 percentage points increase relative to the mean. Further, we show that economic sophistication and human capital have a substantial interaction effect that varies across OECD and non-OECD countries.

The cross-section of labor leverage and equity returns

The relative size and inflexibility of labor expenses lead to a form of operating leverage, which we call labor leverage. We derive a set of conditions for the existence of labor leverage even when labor markets are frictionless. Our model provides theoretical support for the use of firm-level labor share as a measure of labor leverage. Using Compustat/CRSP and confidential Census data, we provide evidence for the existence and for the economic significance of labor leverage: high labor share firms have operating profits that are more sensitive to economic shocks and have higher expected returns.

Factor tariffs and income

ABSTRACTThis article examines a tariff on an imported factor of production in a small, open economy with two domestic factors. Suppose the imported factor is intensive in export production, and labor in import competing production. The factor tariff would reduce export production and trade, but raise the wage. The flexibility afforded by the three factors raises the possibility that import spending might fall more than the decrease in output. That is, the factor tariff could raise income. Inelastic demand for the imported factor and a high labor share of income favor increased income.

Growing Productivity Without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline

The aggregate labor share in U.S. manufacturing declined dramatically over the last three decades: Since the mid-1980’s, the compensation for labor declined from 63% to 42% of value added which is unseen in any other sector of the U.S. economy. The labor share of the typical U.S. manufacturing plants, in contrast, rose by 5%. We document that reallocation of production towards hyper-productive contributes two thirds of the decline while the remaining one third are caused by exit of high-labor share plants. Plants that account for the majority of production by the late 2000's arrive at a low labor share by gradually increasing value added by a factor of three while keeping employment and compensation unchanged. Other than this output response, these low-labor share plants look very similar to their peers along almost all other characteristics such as equipment investment, exposure to trade or whether they are located in right-to-work states. Labor share decline explanations that focus on the role of equipment-embodied technical change, unions or international trade only therefore seem limited. Based on novel empirical evidence, we consider alternative explanations.

On the Pure-Exporters of Developing Economies

Pure-exporters, firms that export most of their products, produce sizable amounts of GDPs in many developing economies. Since pure-exporters are mainly independent from the domestic market conditions, the granular nature of the economy, following Gabaix (2011), paves the way for considering these special exporters. This paper, using firm level data from WBES 2006-2015 for 135 developing economies, first, discovers characteristics of pure-exporters that are different from the regular exporters. Pure-exporters are found to be larger, mostly dependent on one main product, concentrated in several sectors and have higher labor share but lower labor productivity. On the other side, the firms in the countries with higher aggregate pure-exporter activities have higher labor productivity. Finally, it proposes cross-country evidence on the relationship between the pure-exporters and business cycle fluctuations. The pure-exporter activities are found to negative relationship with volatilities of GDP and consumption, and a positive relationship with the inflation. These results can be useful in understanding the implications of policies on the pure-exporter subsidies in many developing countries.

Gender, Migration, and Labor Share

While globalization is viewed by existing literature as aiding to inequality by allowing greater capital mobility, the question I ask in this paper is: what is the relationship between inequality and labor mobility, also a globalization process. To investigate the relationship I employ a panel of data for up to 93 countries in 3 time periods: 1980, 1990, and 2000. I study immigration and emigration female and male stock separately as women make up about half of the cross-country migration flows and are commonly viewed as having less bargaining power than men. I find that higher female and lower male emigration and immigration stock are associated with higher labor share for OECD countries, while for non-OECD countries, it is higher female emigration and immigration stock and lower male immigration stock that are associated with higher labor share.

The Withering Bloom of PACSs in Odisha

Odisha is primarily an agrarian economy. Statistics as divulged by 2011 census illustrate that 83.31 percent of Odisha's population resides in rural areas, depending directly or indirectly upon agriculture for their livelihood. Odisha's economy is expanding through sectoral shifts in GSDP from agriculture to industry to service. While the economy is transferring towards industry and services, the labor force remains concentrated in agriculture. As against the national average of around 52 per cent of labor share in agriculture & forestry in 2010–11, the State has a much higher labor share of 59 per cent. Co-operatives play a very important role in Socio-economic upliftment of the bucolic populace, predominantly, the primary agricultural credit co-operative societies. They are considered to be pillars of the entire cooperative edifice and continue to be the main source of agricultural credit to the farmers in rural areas. But the manner in which they are organized and functioned are not encouraging to efficient and prudent use of the vast resources at their disposal. This paper is an endeavor to evaluate the performance and progress of primary agriculture co-operative societies all through the period from 2002–03 to 2011–12 in Odisha.

Interactions of Fish Sector and Non-Fish Sector in DSGE Model

This paper presents a three sector models showing that the shock of preference of non-fish has only effect on non-fish production, and fish production increase of labor can both influence fish and non-fish sector. But the influence is higher in the non-fish sector. Labor shock can increase the investment and labor in the fish sector and decrease investment and labor in the non-fish sector. This may be caused by high labor share and changes in work in the fish sector.

Skill Investment, Farm Size Distribution and Agricultural Productivity

This paper develops a general equilibrium model to quantitatively explain high labor share, low productivity and small farm size in agriculture in low income countries. The model features individual heterogeneity in skill that is augmentable over time and endogenous occupation choice. Calibrated to the U.S, the model can reproduce bulk of the observed variations in agriculture employment, agriculture output per worker and mean farm size across countries in the sample. In addition, the model generates endogenous farm size distributions that closely resemble the empirical counterpart for a large set of countries. Counterfactual exercises show TFP to be the main source of productivity differences.

A Note on ITQs and Optimal Investment

This paper considers the incentives to invest under an ITQ management regime when labor is rewarded by the so-called share system. It is shown that the share system is likely to result in overinvestment under ITQs. Labor market power of crew, reflected in a high labor share of the catch, might correct for this and might even prevent excessive investment when there is competition for a total catch quota.

A Dynamic Specific-Factors Model of International Trade

In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from working periods to retirement. Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and on the composition of output as they do in a static framework. Changes in these variables affect both total savings and the amount of savings that is diverted toward investment in capital. Results derived from the traditional specific-factors model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital. In this case the land-using sector dominates factor markets more than asset markets. Once the roles for land and capital as assets are recognized, the possibility of natural resource booms that reduce steady-state welfare arises. At the same time, an increase in population can raise steady-state welfare.

Identity-based planning of prices and quantities: Cambridge and neoclassical models for Brazil

The paper uses two extensions of standard “sources of growth” analysis to develop price-endogenous medium term planning models for Brazil. The model constructed on the basis of neoKeynesian (or Cambridge, England) assumptions is shown to describe Brazilian growth and distribution changes in the 1960s better than the alternative neoclassical model. In forecasting exercises for the 1970s, both models point to a trade-off between increased inflation and a higher labor share. The neoclassical variant suggests that potential balance of payments difficulties can be offset by opportune devaluation, but the Cambridge results are much less optimistic. Current events suggest that this pessimistic view may be closer to the mark.