Skilled Labor Risk and Corporate Policies
44 Pages Posted: 20 Mar 2017 Last revised: 2 Mar 2021
Date Written: February 28, 2021
We measure U.S. publicly traded companies’ skilled labor risk, i.e., the potential failure in attracting and retaining skilled labor, by the intensity of their discussions on this issue in their 10-K filings. We show that this measure effectively captures firm risk due to the mobility of skilled labor. We find that the skilled labor risk is an important determinant of compensation policy for the rank-and-file skilled labor. An increase from the 25th percentile to the 75th percentile in the skilled labor risk would increase the skilled labor wage by 22% relative to the sample mean or a premium of $15,593, and also leads to a substantially higher equity-based incentive pay. The skilled labor risk also interacts with other corporate policies such as financial leverage, cash holdings, and M&As, particularly in high-skill industries.
Keywords: Skilled labor, labor mobility, labor skill, incentive pay, compensation, H-1B, leverage, cash holding, M&A
JEL Classification: G30, G32, G34, H20, J20, J24, J40, J41
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