Pat Akey (Toronto), Tania Babina (Columbia), Greg Buchak (Stanford), Ana-Maria Tenekedjieva (Fed Board)

The perceived increase in corporate political influence has raised concerns that corporations push to enact policies that benefit capital and harm labor. We examine the effect of corporate influence on economic outcomes using the surprise Supreme Court ruling in Citizens United v. FEC (2010), which rendered bans on political spending unconstitutional. We compare political and economic outcomes after the ruling in states that had pre-existing bans (affected states) to those that did not in a difference-in-difference analysis. In affected states political spending increases, and governorships experience significant turnover. Surprisingly, however, payments to labor increase, and there is some evidence of increases in payments to capital and overall output. Wage increases occur particularly among young firms. We find evidence of a more business-friendly enforcement environment: affected states enforce fewer labor and consumer protection laws. Together, our findings suggest that that the political changes from corporate money in politics result in increased economic output through less regulatory oversight, and that some of these economic gains are passed on to workers.

Alexander Bartik (UIUC), Marianne Bertrand (U Chicago Booth), Zoë Cullen (HBS), Edward L. Glaeser (Harvard), Michael Luca (HBS), and Christopher Stanton (HBS)

In addition to its impact on public health, COVID-19 has had a major impact on the economy. To shed light on how COVID-19 is affecting small businesses – and on the likely impact of the recent stimulus bill, we conducted a survey of more than 5,800 small businesses. Several main themes emerge from the results. First, mass layoffs and closures have already occurred. In our sample, 43 percent of businesses are temporarily closed, and businesses have – on average – reduced their employee counts by 40 percent relative to January. Second, consistent with previous literature, we find that many small businesses are financially fragile. For example, the median business has more than $10,000 in monthly expenses and less than one month of cash on hand. Third, businesses have widely varying beliefs about the likely duration of COVID related disruptions. Fourth, the majority of businesses planned to seek funding through the CARES act. However, many anticipated problems with accessing the aid, such as bureaucratic hassles and difficulties establishing eligibility.

Andrea Eisfeldt (UCLA), Antonio Falato (FRB) and Mindy Z. Xiaolan (UT Austin)

The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of “human capitalists.” We show that high-skilled labor earns substantial income in the form of equity claims to firms’ future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing almost 45% of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample,including equity-based compensation in high-skilled labor income reduces the total decline in labor’s share of income relative to total value added since the 1980s by over 60%. The inclusion of equity-based compensation also reverses the otherwise declining share of high-skilled labor. Our structural estimation using total income supports complementarity between high-skilled labor and physical capital. We also provide additional regression evidence of such complementarity.

Andrew Ellul (Indiana), Marco Pagano (EIEF), and Annalisa Scognamiglio (Naples)

Employees in finance are known to earn higher wages and returns to talent than non-finance workers since the 1990s, suggesting that finance may have attracted talent at the expense of other industries. However, the allocation of talent is likely to respond to differences in career paths across industries, not in wages at a given date. We analyze the careers of 9,964 individuals from 1980 to 2017 based on their resumes, and find that they tend to remain in the same industry for most of their working lives, consistently with them choosing occupations based on comparisons of entire career paths. Comparing various aspects of careers – levels, slopes, PDV and risk of pay profiles – we document that finance as a whole offers a career premium compared to manufacturing and high tech, through higher and steeper pay profiles. This however masks significant diversity within finance: while asset managers enjoy a large career premium and no commensurate career risks, the opposite applies to banking and insurance employees. Furthermore, relative to manufacturing, the asset management career premium has risen for cohorts entering soon before and during the financial crisis, even after controlling for career risk, while the high-tech career premium has become commensurately large for the latest cohorts.

Daron Acemoglu (MIT), David Autor (MIT), Jonathon Hazell (LSE), and Pascual Restrepo (BU)

Artificial intelligence (AI) technologies are developing rapidly, yet there is limited evidence on how AI is affecting hiring in job categories most likely to be either substituted or complemented by AI. We study the impact of AI on US hiring from 2010 onwards, using establishment level data on vacancies with detailed occupation information comprising the near-universe of online vacancies in the US. We classify establishments as “AI exposed” — that is, likely to replace workers with AI — based on their detailed skill mix garnered from their job postings 2010. We offer three sets of findings. First, we document rapid growth in AI related vacancies over 2010-2018 that is not limited to the Information Technology sector and is greater in AI-exposed establishments. Second, AI-exposed establishments reduce vacancy postings in occupations that are “at risk” of AI-replacement and increase vacancy postings in occupations that are not at risk of AI-replacement. These countervailing effects are essentially fully offsetting: exposed establishments do not significantly alter total vacancy postings. Finally, we find suggestive evidence that AI adoption has non-neutral effects on aggregate vacancy postings at the local labor market level. When an establishment posts more AI vacancies, other establishments in the same labor market post fewer overall vacancies. These “spillovers” are confirmed when we apply a novel identification strategy that leverages the occupation mix in establishments' non-local headquarters.

Digitization and automation are thought to be transforming the economy, but evidence on their adoption and impact is limited. This paper analyzes determinants and effects of firms’ investment in these technologies using administrative data from Germany. The main result is that while technology typically substitutes for workers, in several service industries the complementarity effect dominates. This is shown using two approaches: (1) labor scarcity increases investment in technology on average but impedes it in selected industries; (2) technology typically reduces employment but increases it in selected industries. For identification, I instrument labor scarcity with population aging and use a difference-in-differences design that combines industry-level technological trends with local intensity of technology adoption. Additional results show that financial constraints impede technology adoption and that the new technology is skill-biased. Overall, the paper unwinds the heterogeneous link between new technologies and labor, highlighting the importance of analyzing a broad set of technologies and studying patterns of their adoption by firms.

Stephen Billings (U Colorado Boulder), Emily Gallagher (U Colorado Boulder), and Lowell Ricketts (FRB St Louis)

We provide a novel test for the impact of wealth-destroying natural disasters on college enrollment and completion using Hurricane Harvey (Aug-Sep 2017). First, we document a sharp decline in housing wealth. Then, using data on Texas public universities and colleges, we find an 8.9 percentage point relative decline in enrollment at schools with the largest student share coming from disaster-affected counties. We also find a non-trivial increase in time-to-degree and a drop in 4-year graduation rates. Next, we turn to administrative student loan data on Houston area residents. If human capital investment is held constant, a loss in home equity should lead to more student loan financing. Instead, we find college-age adults from flooded areas are 2.5 percentage points (5.7%) less likely to have student loans than are counterparts from not-flooded areas. Flooded mortgage-holders, particularly those located outside of the floodplain or with less initial equity in their homes, also see relative declines in student loan borrowing. These findings suggest that resource constraints lead to forgone and/or delayed education, highlighting a potential long-term impact of natural disasters that may require policy solutions beyond existing disaster assistance programs.

Ghazala Azmat (Sciences Po), Vicente Cuñat (LSE), and Emeric Henry (Sciences Po)

Using a nationally representative longitudinal survey of lawyers in the U.S., we document a sizeable gap between men and women in their early aspirations to become law firm partners, despite similar early investments and educational characteristics. This aspiration gap can explain a large part of the gender promotion gap that is observed later. We propose a model to understand the role of aspirations and then empirically test its predictions. We show that aspirations create incentives to exert effort and are correlated with expectations of success and the preference for becoming a partner. We further show that aspirations are affected by early work experiences -- facing harassment or demeaning comments early in the career affects long-term promotion outcomes mediated via aspirations. Our research highlights the importance of accounting for, and managing, career aspirations as an early intervention to close gender career gaps.

Zhangkai Huang (Tsinghua), Gordon M. Phillips (Darmouth and NBER), Yang Jialun (Tsinghua), and Cherry Yi Zhang (Nottingham Ningbo)

The Cultural Revolution deprived Chinese students of the opportunity to receive higher education for 10 years when colleges and universities were closed from 1966-1976. We examine the human capital cost of this loss of education on subsequent innovation by firms, and ask if it impacted firms more than 30 years later. We examine the innovation of firms with CEOs who turned 18 during the Cultural Revolution, which sharply reduced their chances of attending college. Using multiple approaches to control for selection and endogeneity, including an instrument based on whether the CEO turned 18 during the Cultural Revolution and a regression discontinuity approach, we show that Chinese firms led by CEOs without a college degree spend less on R&D, generate fewer patents, and receive fewer citations to these patents.

Anna Stansbury (Harvard) and Lawrence H. Summers (Harvard)

Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.

Jun Chen (Renmin), Shenje Hshieh (CUHK), and Feng Zhang (Utah)

In two natural experiments based on H-1B visa lotteries and a drastic drop in the annual H-1B visa quota, we document that firms respond to shortages of high-skilled workers by acquiring target firms that have such high-skilled workers. Additional tests suggest that these acquisitions are driven by the acquirers’ desire for the targets’ talents rather than their tangible assets or intellectual properties. Acquirers that successfully obtain skilled workers from their targets outperform acquirers that withdraw their acquisition bids for exogenous reasons. Our findings suggest that skilled labor is a driver of acquisition decision and a source of synergy gains.

Xiaohu Guo (Alabama), Vishal Gupta (Alabama), Sandra Mortal (Alabama), and Vikram Nanda (UT Dallas)

The increasing presence of women in executive positions has fostered interest in understanding how men and women fare in the managerial labor market. We examine gender differences in managerial job mobility by focusing on managers displaced (almost 90%) when their firms are acquired. Comparing labor market outcomes for similarly-ranked managers from the same target firm and within the same functional area, we find that career disruption results in a larger drop in rank for female managers, despite similar job search efforts. Gender differences are moderated for managers hired by firms with more women in upper echelon positions. Women with rich prior managerial experience and service on external boards also fare well. Our results point to a significant (implicit) ‘gender penalty’ for women in terms of managerial job mobility, but also indicate contexts in which the penalty may be alleviated, and even reversed.

Radhakrishnan Gopalan (Wash U), Barton Hamilton (Wash U), Jorge Sabat (U Diego Portales), David Sovich (U Kentucky)

We use payroll and consumer credit data to estimate the effect of the minimum wage on low-wage workers' debts. In the three years following a $0.88 increase in the minimum wage, low-wage workers' incomes rise by $2,526 while total debts decline by $855. The entire decline in debt comes from a reduction in student loan borrowing among enrolled college students. Former students and non-students, in contrast, borrow more in response to an increase in the minimum wage. Future credit constraints, buffer-stock behavior, and life-cycle factors cannot explain the reduction in student loan debt. An intertemporal consumption-savings model with costly education and student debt aversion best matches our findings.

Aloiso Araujo (FGV), Rafael Ferreira (Sao Paulo), Spyros Lagaras (Pittsburgh), Flavio Moraes (FGV), Jacopo Ponticelli (Kellogg), Maragarita Tsoutsoura (Cornell)

Judicial decisions in bankruptcy are often influenced by the goal of preserving employment in financially distressed firms. Is such pro-labor bias good for workers? We construct a new court-level measure of pro-labor bias based on judges' deviations from the letter of the law, and exploit the random assignment of cases to courts within judicial districts in the state of Sao Paulo in Brazil to study the effect of pro-labor bias on labor market outcomes. Employees whose firms were assigned to a high pro-labor court experience 4.2 percent lower post-bankruptcy earnings relative to employees whose firms were assigned to a low pro-labor court. This negative effect is persistent in the seven-year period after bankruptcy. We provide evidence consistent with this effect being driven by high pro-labor courts disproportionately favoring firm continuation. While employees of liquidated firms experience a large initial drop in earnings upon bankruptcy and a fast convergence to their pre-bankruptcy level, the earnings of employees of reorganized firms remain significantly below their pre-bankruptcy level. Our results indicate that, on average, pro-labor bias can be detrimental for workers' earnings and employment trajectories after bankruptcy.

Antonio Falato (FRB), Hyunseob Kim (Cornell), Till Von Wachter (UCLA)

Using confidential establishment-level data from the U.S. Census Bureau's Longitudinal Business Database from 1982-2015, we examine how shareholder power affects firm employment and payroll decisions. Consistent with theory of the firm based on conflicts of interests between shareholders and stakeholders, we find that establishments of firms owned by larger and more concentrated institutional shareholders have lower employment and payroll. These results are not driven by unobserved heterogeneity across establishments or differences in exposure to industry and local shocks, and hold up in a difference-in-differences design that exploits large increases in block institutional ownership. The results are more pronounced in industries with a smaller fraction of unionized labor, in more concentrated local labor markets, and for dedicated and activist institutions. The labor losses are accompanied by higher shareholder returns but lower labor productivity. Our findings suggest a role for employment policies that aim at reforming shareholder capitalism.

Jeff Gortmaker (Harvard), Jessica Jeffers (Chicago), Michael J. Lee (NY Fed)

We examine worker reactions to firms' credit deterioration using anonymized networking activity on LinkedIn. In the weeks immediately following a negative credit event, connection activity increases at affected firms across the credit rating distribution, pointing to costs beyond those originating from bankruptcy. Heightened networking activity is associated with contemporaneous and future departures, especially at highly-rated firms. Other negative events like missed earnings and equity sell recommendations do not trigger similar reactions. Overall, our results indicate that the latent build-up of connections triggered by credit deterioration represents a source of fragility for firms.

Andreas Fagereng (BI Norwegian Business School), Luigi Guiso (Einaudi), Luigi Pistaferri (Stanford)

Population data on capital income and wealth holdings for Norway allow us to measure asset positions and wealth returns before individuals marry and after the household is formed. Using these data we establish a number of novel facts. First, there is assortative mating on the basis of own wealth. Second, assortative mating on own wealth dominates, and in fact statistically eliminates, assortative mating on parental wealth. Third, there is evidence of assortative mating on returns to wealth. Finally, post-marriage returns on family wealth are largely explained by the return of the spouse with the highest pre-marriage return. This suggests that family wealth is largely managed by the spouse with the highest capacity for wealth accumulation. We use simulations to evaluate the effects of assortative mating on wealth, assortative mating on returns, and post-marriage allocation of wealth management tasks on wealth inequality and wealth concentration. Assortative mating on wealth is the dominant force explaining wealth concentration at marriage. Returns heterogeneity resulting from mating on returns and post-marriage allocation of wealth management between spouses plays a dominant role for explaining changes in wealth inequality as couples move through their life cycle.

Luca Coraggio (Naples), Marco Pagano (Naples), Annalisa Scognamiglio (Naples), Joacim Tag (IFN)

Does the way in which workers are matched to jobs contribute to explain why some firms are more productive than others? To address this question we develop a job-worker allocation quality measure (JAQ) by combining employer-employee administrative data with machine learning techniques. We validate the measure by exploring its correlation with workers’ wages over their careers, firm performance, and major organizational changes of firms. JAQ can be constructed for any linked employer-employee data that include workers’ job assignments, and it can be applied widely in testing predictions in corporate finance, corporate governance, organization theory, and labor economics.

Xiao Cen (Texas A&M), Yue Qiu (Temple), Tracy Yue Wang (Minnesota)

In this study we examine a specific channel through which corporate social responsibilities (CSR) may impact long-term firm value---the impact of firms’ CSR policies on employee retention. Using data from the U.S. Census, we document a robust negative relation between firms’ policies regarding environmental and social issues and employee voluntary separation rates, and such relation becomes stronger over time. The retention effect of a firm’s CSR is stronger for its left-leaning employees than the right-leaning employees. Exploring the impact of an exogenous rightward shift in corporate ideology on firms’ CSR policies and the separation rates of firms’ left-leaning versus right-leaning employees, we document that employer-employee ideology alignment is the most likely mechanism underlying the retention effect of CSR. Finally, we find that financial incentives cannot substitute away the effect of CSR on the retention of left-leaning employees.

Wei Jiang (Columbia), Yuehua Tang (Florida), Rachel (Jiqiu) Xiao (Georgia State), Vincent Yao (Georgia State)

This paper studies how demand for labor reacts to financial technology (fintech) shocks based on comprehensive databases of fintech patents and firm job postings in the U.S. during the past decade. We first develop a measure of fintech exposure at the occupation level by intersecting the textual information in job task descriptions and fintech patents. We then document a significant decline of job postings in the most exposed occupations, and an increase in industry as well as geographical concentration of these occupations. Firms resort to an upskilling strategy in face of the fintech disruption, requiring “combo” (finance and software) skills, higher education attainments, and longer work experiences in the hiring of fintech-exposed jobs. Financial firms and those with high innovation outputs are able to offset the disruptive effect from the fintech shock. Among innovating firms, however, only inventors (but not acquisition-driven innovators) experience growth in hiring, sales, investment, and enjoy better returns on assets.

Leonid Kogan (MIT), Dimitris Papanikolau (Kellogg), Larry Schmidt (MIT), Bryan Seegmiller (MIT)

We construct new technology indicators using textual analysis of patent documents and occupation task descriptions that span of two centuries (1850-2010). At the industry level, improvements in technology are associated with higher labor productivity but a decline in the labor share. Exploiting variation in the extent certain technologies are related to specific occupations, we show that technological innovation has been largely associated with worse labor market outcomes---wages and employment---for incumbent workers in related occupations using a combination of public-use and confidential administrative data. Panel data on individual worker earnings reveal that less educated, older, and more highly-paid workers experience significantly greater declines in average earnings and earnings risk following related technological advances. We reconcile these facts with the standard view of technology-skill complementarity using a model that allows for skill displacement.