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Economic growth and labor investment efficiency

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  • Amanjot Singh

Abstract

We examine the relationship between economic growth and labor investment efficiency. Using a sample of US firms from 1991 to 2019, our findings suggest that labor investment inefficiency increases with the expansion of economic activities. Although economic growth increases labor overinvestment, it also decreases labor underinvestment. The magnitude effect of economic growth is more pronounced for labor overinvestment. Labor investment inefficiency is noticeable during low economic policy uncertainty. Economic growth‐induced labor investment inefficiency is pronounced for (1) large firms, (2) high labor intensity firms, and (3) firms with overinvestment in non‐labor investments. Further, economic growth negatively (positively) influences the firm's future performance for labor overinvested (underinvested) firms. Our findings remain robust to alternative specifications.

Suggested Citation

  • Amanjot Singh, 2023. "Economic growth and labor investment efficiency," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 886-902, December.
    • Handle: RePEc:bla:irvfin:v:23:y:2023:i:4:p:886-902
    DOI: 10.1111/irfi.12415
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    References listed on IDEAS

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