Labor Mobility: Implications for Asset Pricing



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    • Andrés Donangelo is with the Finance Department, University of Texas at Austin. This paper is based on the first chapter of my PhD dissertation at the University of California at Berkeley entitled “Labor Mobility and the Cross-Section of Expected Returns.” I am very grateful to the members of my dissertation committee, Nicolae Gârleanu (Chair), Martin Lettau, Dmitry Livdan, and Ulrike Malmendier. I would like to thank the anonymous referee, the anonymous Associate Editor, Aydogan Alti, Jonathan Berk, Maria Cecilia Bustamante, Esther Eiling, Andrew Karolyi, Campbell Harvey (the Editor), Hayne Leland, Richard Lowery, Miguel Palacios, Christine Parlour, Mitchell Petersen, Selale Tuzel, Johan Walden, Lu Zhang, and seminar participants at Arizona State University, Boston College, Columbia University, Copenhagen Business School, Cornell University, Duke University, Federal Reserve Board, Indiana University, London Business School, MIT, Northwestern University, Ohio State University, Stanford University, UC Berkeley, UCLA, UI Urbana-Champaign, USC, UT Austin, WFA 2011 Meeting, and the 19 Mitsui Finance Symposium for helpful comments and discussions. Errors are solely my responsibility. I gratefully acknowledge the Dean Witter, White, and NASDAQ OMX Educational foundations for financial support.


Labor mobility is the flexibility of workers to walk away from an industry in response to better opportunities. I develop a model in which labor flows make bad times worse for shareholders who are left with capital that is less productive. The model shows that firms face greater operating leverage by providing flexibility to mobile workers. I construct an empirical measure of labor mobility consistent with the model and document an economically significant cross-sectional relation between mobility, operating leverage, and stock returns. I find that firms in mobile industries earn returns over 5% higher than those in less mobile industries.