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Labor Share and Firm Performance

Author

Listed:
  • Yuki Hashimoto

    (Associate Professor, Kyushu University)

Abstract

This study analyzes the relationship between firms f distribution of value added, particularly labor share, and their yearly performance, using panel data (for 1994 - 2013) from the Financial Statements Statistics of Corporations by Industry in Japan. In all samples, while a decline in labor share accompanies sales growth in the same year, rises in the share are observed two years later, indicating the possibility of average firms having adjusted profit changes with the intertemporal distribution. An analysis in which firms are broken down by industry and average sales growth found that sales changes at manufacturing firms have significantly negative effects on labor share in the same year, irrespective of the extent of sales growth rates. This might be because fixed costs f share of total labor costs are higher at manufacturing firms; even if value added increases in line with sales growth, total labor costs are adjusted only slightly, resulting in a decline in labor share. At rapidly growing non-manufacturing firms, however, sales growth does not accompany labor share fs decline. This means that the distribution of profits to workers increases as much as value added growth at these firms. Apparently, these firms distribute value added to labor costs, dividend and retained earnings in line with value added growth, keeping profit shares for these items stable.

Suggested Citation

  • Yuki Hashimoto, 2017. "Labor Share and Firm Performance," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 13(2), pages 183-206, October.
    • Handle: RePEc:mof:journl:ppr13_02_06
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    File URL: https://www.mof.go.jp/english/pri/publication/pp_review/fy2017/ppr13_02_06.pdf
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    References listed on IDEAS

    as
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    3. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    4. John A. Abowd & Thomas Lemieux, 1993. "The Effects of Product Market Competition on Collective Bargaining Agreements: The Case of Foreign Competition in Canada," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 983-1014.
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    Cited by:

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    More about this item

    Keywords

    labor share; value added; rent sharing;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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