Working Paper: NBER ID: w28815
Authors: Andrea L. Eisfeldt; Antonio Falato; Mindy Z. Xiaolan
Abstract: 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.” High-skilled labor earns substantial income in the form of equity claims to firms’ future dividends and capital gains. Equity-based compensation has increased substantially since the 1980s, representing thirty-six percent of total compensation to high-skilled labor in US manufacturing in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In manufacturing, the inclusion of equity-based compensation almost eliminates the decline in the high-skilled labor share, and reduces the total decline in the labor share by about one-third. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). We also provide additional regression evidence of such complementarity.
Keywords: human capitalists; equity-based compensation; labor share; macroeconomic trends
JEL Codes: E0; E25; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| equity compensation (M52) | high-skilled labor income (J31) |
| high-skilled labor income (J31) | labor share (D33) |
| equity compensation (M52) | wage dynamics (J31) |
| high-skilled labor income (J31) | physical capital share (D33) |
| physical capital share (D33) | labor share (D33) |
| high-skilled labor income + physical capital share (D33) | labor share (D33) |