You may be able to download this chapter for free via the Document Object Identifier.
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." High-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital gains. Equity-based compensation has increased substantially since the 1980s, representing 36 percent of total compensation to high-skilled labor in US manufacturing in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In manufacturing, the inclusion of equity-based compensation almost eliminates the decline in the high-skilled labor share, and reduces the total decline in the labor share by about one-third. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that found by Cobb and Douglas decades ago. We also provide additional regression evidence of such complementarity.
We thank our discussants Gianluca Violante, Eric Zwick, Lars Alexander-Kuehn, Francois Gourio, Daniel Greenwald, and Thomas Lemieux, as well as Erik Hurst, Matthias Kehrig, Lee Ohanian, Valerie Ramey, and seminar and conference participants at the NBER Summer Institute Micro Data and Macro Models Workshop, the Society of Economic Dynamics Annual Meeting, the MIT Junior Finance Conference, ASU Sonoran Winter Finance Conference, the Macro Finance Society Biannual Meeting, Texas Finance Festival, WUSTL the Macroeconomics of Inequality Mini-Conference, AFA, Boston University, Columbia University, the University of Minnesota, the University of Illinois Urbana-Champaign, the London School of Economics, the University of Texas at Austin, MIT, Stanford, UC Davis, Northwestern University, the University of Chicago, Carnegie Mellon University, Georgetown University, Princeton University, Upenn Wharton School, University of Toronto, London Business School for their helpful comments. Xiaolan gratefully acknowledges the financial support from the faculty excellence research grant from the McCombs School of Business at the University of Texas at Austin. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.