Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor

Frederico Belo, Jun Li, Xiaoji Lin, Xiaofei Zhao

Research output: Contribution to journalArticlepeer-review

56 Scopus citations


Previous studies have identified a negative relation between firms' hiring rates and future stock returns in the cross-section.We document that this relation is significantly steeper in industries that rely relatively more on high-skill workers than low-skill workers. A longshort portfolio sorted on firm-level hiring rate earns an average annual return of 8.6% in high-skill industries, and only 0.9% in low-skill industries. Moreover, this pattern is not explained by the standard CAPM. These findings are consistent with a neoclassical model with labor force heterogeneity and labor market frictions if it is more costly to replace high-skill than low-skill workers.

Original languageEnglish (US)
Pages (from-to)3669-3709
Number of pages41
JournalReview of Financial Studies
Issue number10
StatePublished - Oct 1 2017

Bibliographical note

Publisher Copyright:
© 2017 The Author. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.


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