The Rise of Human Capitalist

Human capitalists are firm employees whose income is equity-based – i.e., for example, based on equity share grants or stock-options, and as such share into the firm’s capital gains much like non-employee capitalists. In this paper, we use theory and data to quantify their macroeconomic importance. Using two measures of non-wage income as a share of output -- hand-collected information on the number of shares reserved for employee stock option compensation (RS) or based on either selling, general, and administrative expenses (SGA) -- we show that since the 1960s human capitalists have become an increasingly important class of income earners in the US. A parsimonious model of ``technological complementary" between physical capital and human capitalists can replicate this fact as a response to investment-specific technological change. Cross-industry evidence further corroborates the key prediction of the model that there should be a negative relation between the human capitalists’ share and investment good prices. We plan to use the model to get quantitative estimates of the degree of complementarity between physical and human capital. The estimated version of the structural model will also allow us to explore the quantitative implications of the complementarity mechanism.