Wednesday, October 21, 2020 | 9:00am - 10:30am | ZOOM

Abstract

The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of “human capitalists.” We show that high-skilled labor earns substantial income in the form of equity claims to firms’ future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing almost 45% of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample, including equity-based compensation in high-skilled labor income reduces the total decline in labor’s share of income relative to total value added since the 1980s by over 60%. The inclusion of equity-based compensation also reverses the otherwise declining share of high-skilled labor. Our structural estimation using total income supports complementarity between high-skilled labor and physical capital. We also provide additional regression evidence of such complementarity.