Capital Structure and a Firm's Workforce

2018 ◽  
Vol 10 (1) ◽  
pp. 387-412 ◽  
Author(s):  
David A. Matsa
Keyword(s):  
Human Capital ◽  
Labor Market ◽  
Capital Structure ◽  
Job Security ◽  
Defined Benefit ◽  
Financing Decisions ◽  
Labor Market Frictions ◽  
Workforce Reductions ◽  
Defined Benefit Pensions ◽  
Labor Negotiations

While businesses require funding to start and grow, they also rely on human capital, which affects how they raise funds. Labor market frictions make financing labor different than financing capital. Unlike capital, labor cannot be owned and can act strategically. Workers face unemployment costs, can negotiate for higher wages, are protected by employment regulations, and face retirement risk. I propose using these frictions as a framework for understanding the unique impact of a firm's workforce on its capital structure. For instance, high leverage often makes managing labor more difficult by undermining employees’ job security and increasing the need for costly workforce reductions. But firms can also use leverage to their advantage, such as in labor negotiations and defined benefit pensions. This research can help firms account for the needs and management of their workforce when making financing decisions.

Overview of the Issue

2003 ◽  
Vol 2 (2) ◽  
pp. 97-98
Author(s):  
JEFFREY BROWN ◽  
STEVEN HABERMAN ◽  
MOSHE MILEVSKY ◽  
MIKE ORSZAG
Keyword(s):  
Human Capital ◽  
Older Workers ◽  
Life Cycle Analysis ◽  
Original Research ◽  
Defined Benefit ◽  
Benefit Design ◽  
Oxford University ◽  
Younger Workers ◽  
Defined Benefit Plans ◽  
Defined Benefit Pensions

This issue features three original research articles and an issues & policy article. The first article in the issue is by David McCarthy (Oxford University, UK). A Life Cycle Analysis of Defined Benefit Plans examines optimal benefit design within the context of a lifecycle model. The model finds that the structure of defined benefit plans is unlikely to be optimal for younger workers. The intuition is straightforward: defined benefit pensions depend heavily on the evolution of a worker's human capital and young workers are already heavily exposed to human capital risks. Older workers however may find wage indexed claims to be more valuable as most other human capital uncertainty has vanished.

scholarly journals How The Legacy of Slavery Has Survived: A Mechanism through Labor Market Institutions and Human Capital

2018 ◽  
Author(s):  
Yeonha Jung
Keyword(s):  
Human Capital ◽  
Labor Market ◽  
Capital Structure ◽  
Census Data ◽  
Negative Impact ◽  
Labor Market Institutions ◽  
Market Institutions ◽  
Long Run ◽  
Competitive Labor Market ◽  
Labor Market Regulations

In spite of sizable qualitative literature on the long-run legacy of slavery, its robust evidence and convincing mechanism have not been established. This research evaluates the legacy of slavery on long-run development and its detailed mechanism which consists of two key factors, labor market institutions and human capital structure. Using county-level data of the U.S. South and exploiting exogenous variation in ecological conditions, I show that slavery has had persistent negative impact on economic development through the human capital structure. To explain the link between slavery and human capital, I find from complete count census data in 1940 that the legacy of slavery impeded integration of black workers into the competitive labor market which accordingly reduced the incentives of blacks to invest in human capital. In addition, evidence from the progressive Era along the border counties shows that the legacy of slavery on the labor market was operated through selective enforcement of labor market regulations. Lastly, I present the roles of racial wage discrimination and selective migration which reinforced persistence of the mechanism.

LONG-RUN TAX INCIDENCE IN A HUMAN-CAPITAL-BASED ENDOGENOUS GROWTH MODEL WITH LABOR-MARKET FRICTIONS

2019 ◽  
pp. 1-42
Author(s):  
Been-Lon Chen ◽  
Hung-Ju Chen ◽  
Ping Wang
Keyword(s):  
Human Capital ◽  
Labor Market ◽  
Endogenous Growth ◽  
Growth Model ◽  
Tax Incidence ◽  
Labor Income ◽  
Market Participation ◽  
Long Run ◽  
Labor Market Frictions ◽  
Endogenous Growth Model

In a second-best optimal growth setup with only factor taxes, it is in general optimal to fully replace capital by labor income taxation in the long run. We revisit this important issue by developing a human-capital-based endogenous growth model with frictional labor search, allowing each firm to create multiple vacancies and each worker to determine market participation. We find that the conventional efficient bargaining condition is necessary but not sufficient for achieving constrained social optimality. We then conduct tax incidence exercises in balanced growth by calibrating to the U.S. economy with a preexisting 20% flat tax on capital and labor income. Our quantitative results suggest that, due to a dominant channel via the interactions between vacancy creation and market participation, it is optimal to switch only partially from capital to labor taxation in a benchmark economy where human-capital formation depends on both physical and human-capital stocks. This main finding is robust even along the transition with time-varying factor tax rates. Moreover, our quantitative analysis under alternative setups suggests that while endogenous human capital and labor-market frictions are essential for obtaining a positive optimal capital tax, endogenous leisure, nonlinear human-capital accumulation and endogenous growth are not crucial.

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