Macro-JI Seminar - Romain Rancière

Abstract:

How does growing international financial diversification affect rm-level and aggregate
labor shares? We study this question using a novel framework of rm labor choice under
uncertainty. The theory predicts that international risk sharing leads to a reallocation of
labor towards riskier/low labor share rms alongside a rise in within-rm labor shares,
matching key micro-level facts. We use rm-level and cross-country data to document a
number of empirical patterns consistent with the theory, namely: (i) riskier rms have
lower labor shares, (ii) international diversification is associated with reallocation towards
risky rms and declines in the aggregate labor share, and (iii) industries with greater
heterogeneity have higher sensitivity of their labor share to international diversification.