Human Capitalists

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 forty percent 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 wage-only income share relative to total value added since the 1980s by over 30%. The inclusion of equity-based compensation also eliminates the majority of the decline in the high-skilled labor share. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). We also provide additional regression evidence of such complementarity.