Using a standard production model, we demonstrate theoretically that, even if labor is fully flexible, it generates a form of operating leverage if (a) wages are smoother than productivity and (b) the capital-labor elasticity of substitution is strictly less than one. Our model supports using...

In a neoclassical dynamic model of the firm with labor market frictions, optimal hiring is a forward-looking decision that depends on both discount rates and expected cash flows. Empirically, we show that: a) the aggregate hiring rate of publicly traded firms in the U.S. economy negatively...

Using a standard production model, we demonstrate theoretically that, even if labor is fully flexible, it generates a form of operating leverage if (a) wages are smoother than productivity and (b) the capital-labor elasticity of substitution is strictly less than one. Our model supports using...

This paper studies how expected returns interact with product market competition. The model predicts that (i) competition erodes markups, such that firms are more exposed to systematic risk; (ii) the threat of entry by new firms lowers exposure to systematic risk of incumbents; and (iii) higher...

Using a standard production model, we demonstrate theoretically that, even if labor is fully flexible, it generates a form of operating leverage if (a) wages are smoother than productivity and (b) the capital-labor elasticity of substitution is strictly less than one. Our model supports using...

This paper shows that labor leverage, as proxied by labor share, explains roughly half of the value premium, although it is almost unrelated to future cash flow growth. The other half of the value premium is determined by the component of the book-to-market ratio that is orthogonal to labor...

This paper studies how expected returns interact with product market competition. We present a model in which product market competition is jointly captured by the industry concentration and the average markup. We then provide empirical evidence consistent with three channels that explain the...

Labor mobility is the flexibility of workers to walk away from an industry in response to better opportunities. I develop a model in which labor flows make bad times worse for shareholders who are left with capital that is less productive. The model shows that firms face greater operating...

This paper quantifies the relative importance of labor-induced operating leverage at explaining the value premium. I extend a traditional variance decomposition methodology using labor shares to disentangle labor leverage from the value premium and from the value spread and from the variation in...