This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2021
  4. Preliminary Program
  5. Topics in Investment, Firm Heterogeneity, and Firm Dynamics
« Back to Results

Topics in Investment, Firm Heterogeneity, and Firm Dynamics

Paper Session

Tuesday, Jan. 5, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: International Society for Inventory Research
  • Chair: Sara Moreira, Northwestern University

Human Capitalists

Andrea Eisfeldt
,
University of California-Los Angeles
Mindy Xiaolan
,
University of Texas-Austin
Antonio Falato
,
Federal Reserve Board

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.” 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.

Owning Up: Closely Held Firms and Wealth Inequality

Alessandra Peter
,
IIES University of Stockholm

Abstract

Do inheritance taxes deter entrepreneurship? We study this question using a natural experiment in Germany. An inheritance tax reform largely exempted companies from inheritance taxation for entrepreneurs whose ownership stake exceeds 25%. We use this threshold to identify the impact of inheritance taxes on the intergenerational transmission of business wealth. We then test how the prospect of transferring the business tax-free later in life changes entrepreneurial behavior earlier in the life cycle. We provide estimates for the impact on investment behaviour, firm growth and the likelihood of exiting entrepreneurship altogether.

Population Growth and Firm Dynamics

Michael Peters
,
Yale University
Conor Walsh
,
Yale University

Abstract

Falling rates of fertility have dramatically reduced population growth in most developed countries since the 1970s. We argue that this trend has profound consequences for the process of firm dynamics and aggregate growth. Using a rich model of firm dynamics, we show analytically that a decline in the rate of population growth reduces creative destruction, increases average firm size and market concentration, raises market power and misallocation, and lowers aggregate growth. Quantitatively, we find that the slowdown in labor force growth in the U.S. since the 1980s can account for the decline in entry and the increase in firm size. It also generates quantitatively significant changes in markups, but plays only a small role in explaining the decline in aggregate productivity growth.
Discussant(s)
Francois Gourio
,
Federal Reserve Bank of Chicago
Marius Ring
,
Northwestern University
Huiyu Li
,
Federal Reserve Bank of San Francisco
JEL Classifications
  • E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
  • G1 - Asset Markets and Pricing