Stakeholder Participation in a Company's Success and Resilience Against Shocks

Author Name OKUBO Toshihiro (Keio University) / Alexander F. WAGNER (University of Zurich) / YAMADA Kazuo (Ritsumeikan University)
Creation Date/NO. February 2021 21-E-011
Research Project East Asian Industrial Productivity
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This paper investigates how several of a company's stakeholders (labor, capital, and the government) share in a company's success and how this division affects firms' resilience to shocks. The analysis draws on detailed microdata of Japanese manufacturing companies (listed and unlisted). The labor share (the share of wages in operating income before depreciation and wages) is larger in smaller, less profitable, and older firms; in fact, labor share has fallen substantially over the last 20 years. The opposite holds for the residual share, potentially accruing to shareholders. In theory, a higher labor share either acts as operating leverage, amplifying exogenous shocks, or helps to mitigate such shocks by inducing higher effort and loyalty from workers. Empirically, firms' profit growth with higher labor shares turns out to be more resilient to macroeconomic shocks. These results have implications for understanding the consequences of societal changes such as technological progress that reduce the labor share.