Labor Market Power and Firm Financial Flexibility

Using a novel database representing the near-universe of US online job postings, we examine the role of firms’ labor market power on financial flexibility and corporate policy. Validating our measure, within a county-occupation, high labor market power is associated with lower posted wages. The measure is associated with lower cash holdings and market beta, and higher Tobin’s Q and profitability. The relation is stronger in industries that are labor intensive, which have high worker mobility, and low rates of unionization and attributable to market-share over high skill jobs. High labor market power firms react less to passages of enforcement of non-compete laws, which we use as a difference-in-differences strategy. The result is consistent with the idea that high labor market power firms are less exposed to shocks in the labor market