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...

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...

Priceless consumption (PC) is a type of consumption that is not available in the marketplace and, therefore, is absent from aggregate consumption measures. We propose an estimation methodology to recover PC from its effects on the composition of observable consumption. The estimation shows that...

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...