International diversification, reallocation, and the labor share

Arbeitspapier

How does growing international financial diversification affect firm-level and aggregate labor shares? We study this question using a novel framework of firm labor choice in the face of aggregate risk. The theory implies a cross-section of labor risk premia and labor shares that appear as markups in firm-level data. International risk sharing leads to a reallocation of labor towards riskier/low labor share firms alongside a rise in within-firm labor shares, matching key micro-level facts. We use cross-country firm-level data to document a number of empirical patterns consistent with the theory, namely: (i) riskier firms have lower labor shares and (ii) international financial diversification is associated with a reallocation towards risky/low labor share firms. Our estimates suggest the reallocation effect has dominated the within effect in recent decades; on net, increased financial integration has reduced the corporate labor share in the US by about 2.5 percentage points, roughly one-third of the total decline since the 1970s.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. WP 2023-16

Classification and Topics

• Classification: Wirtschaft
• Subject: Internationale Geschäftsbeziehungen ; Internationale Faktormobilität ; Kapitalmobilität ; Internationale Unternehmensfinanzierung ; Lohnquote ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): David, Joel M. ; Rancière, Romain ; Zeke, David
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2023

Further information

• DOI: doi:10.21033/wp-2023-16
• Handle: http://hdl.handle.net/10419/284057
• Last update: 10.03.2025, 11:44 AM CET