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. 2023
  4. Program
  5. Corporate Finance: Labor and Finance
« Back to Results

Corporate Finance: Labor and Finance

Paper Session

Saturday, Jan. 7, 2023 2:30 PM - 4:30 PM (CST)

Sheraton New Orleans, Napoleon D
Hosted By: American Finance Association
  • Chair: Andrew Ellul, Indiana University

Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark

Daron Acemoglu
,
Massachusetts Institute of Technology
Alex He
,
University of Maryland
Daniel le Maire
,
University of Copenhagen

Abstract

This paper provides evidence from the US and Denmark that managers with a business degree (“business managers”) reduce their employees’ wages. Within five years of the appointment of a business manager, wages decline by 6% and the labor share by 5 percentage points in the US, and by 3% and 3 percentage points in Denmark. Firms appointing business managers are not on differential trends and do not enjoy higher output, investment, or employment growth thereafter. Using manager retirements and deaths and an IV strategy based on the diffusion of the practice of appointing business managers within industry, region and size quartile cells, we provide additional evidence that these are causal effects. We establish that the proximate cause of these (relative) wage effects are changes in rent-sharing practices following the appointment of business managers. Exploiting exogenous export demand shocks, we show that non-business managers share profits with their workers, whereas business managers do not. But consistent with our first set of results, these business managers show no greater ability to increase sales or profits in response to exporting opportunities. Finally, we use the influence of role models on college major choice to instrument for the decision to enroll in a business degree in Denmark and show that our estimates correspond to causal effects of practices and values acquired in business education—rather than the differential selection into business education of individuals unlikely to share rents with workers.

Subtle Discrimination

Daniel Ferreira
,
London School of Economics
Elena Pikulina
,
University of British Columbia

Abstract

We propose a theory of subtle discrimination, defined as discriminatory behavior without direct payoff consequences for the decision-maker. We present a model in which candidates compete for promotion to a better job. When choosing among equally-qualified candidates, the principal subtly discriminates by breaking ties in favor of candidates from a particular group. Subtle discrimination distorts candidates’ human capital investment decisions. The model predicts that discriminated agents perform better in low-stakes careers, while favored agents perform better in high-stakes careers. In equilibrium, firms are polarized: high-productivity firms strive to be “progressive” and have diverse top management teams, while low-productivity firms prefer to be “conservative” and have little diversity at the top.

Owner Culture and Pay Inequality within Firms

Jan Bena
,
University of British Columbia
Guangli Lu
,
Chinese University of Hong Kong-Shenzhen
Iris Wang
,
University of British Columbia

Abstract

We study the role of national culture in explaining differences in within-firm pay inequality among closely-held firms owned by immigrants in Canada. Using a unique matched employer-employee-owner tax filing data, we find that the culture that immigrant owners bring from their home countries has an economically significant influence on the pay inequality within their firms. Relative to firms owned by immigrants from the United States, firms owned by immigrants from most other countries have significantly smaller pay inequality. Consistent with the argument that individualistic owners emphasize monetary incentives, individual achievement, and individual accountability, while focusing less on group harmony and equal pay, we show that that Hofstede’s individualism is a key driver of within-firm pay inequality. We find that within-firm pay inequality is higher if a firm’s owner immigrated from a more individualistic country. We further conduct a series of analyses showing that the impact of culture on within-firm pay inequality is likely to be causal. In the difference-in-differences setting, we find an increase in within-firm pay inequality after the firm was taken over by immigrant owners from a more individualistic country. Overall, our findings suggest that informal institutions such as national culture may be important determinants of income inequality.

For Better or Worse? The Economic Implications of Paid Sick Leave Mandates

Turk Al-Sabah
,
University of North Carolina-Chapel Hill
Paige Ouimet
,
University of North Carolina-Chapel Hill

Abstract

Public calls for a national paid sick leave policy continue to mount in the United States. Using the staggered adoption of local and state mandates, we document an average increase of 1.5% in employment following the enactment of a paid sick leave policy. As predicted, workers with ex ante lower access to paid sick leave drive the employment effect. Several mechanisms can explain our findings. Paid sick leave mandates are associated with a decline in labor turnover, an increase in the labor supply, and an increase in household income, which creates positive spillover effects on local markets. Moreover, firms exposed to the mandate experience a significant increase in operating profit – benefits firms may not be able to achieve through voluntary actions, in the absence of a mandate, due to adverse selection.

Discussant(s)
Gordon Phillips
,
Dartmouth College and NBER
Alessio Piccolo
,
Indiana University
Liu Yang
,
University of Maryland
Camille Hebert
,
University of Toronto
JEL Classifications
  • G3 - Corporate Finance and Governance