| Publications [#325834] of Matthias Kehrig
Papers Submitted
- Kehrig, M; Donangelo, A; Gourio, F; Palacios, M, The Cross-Section of Labor Leverage and Equity Returns
(September, 2016),
pp. 497-518, Elsevier BV [doi]
(last updated on 2024/03/29)
Abstract: Using a standard production model, we demonstrate theoretically that, even if labor is fully flexible, it generates a form of operating leverage if (a) wages are smoother than productivity and (b) the capital-labor elasticity of substitution is strictly less than one. Our model supports using labor share -- the ratio of labor expenses to value added -- as a proxy for labor leverage. We show evidence for conditions (a) and (b), and we demonstrate the economic significance of labor leverage: High labor-share firms have operating profits that are more sensitive to shocks, and they have higher expected asset returns.
|