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Donangelo, Andres; Gourio, François; Kehrig, Matthias; Palacios, Miguel
Journal of financial economics, 05/2019, Letnik: 132, Številka: 2Journal Article
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.
