The Labor Market Impact of Shareholder Power: Worker-Level Evidence

Abstract

Using worker-level data from the US Census Bureau’s LEHD program, we show that increases in shareholder power lead to persistent earnings losses for employees. We track worker earnings up to six years after their firms experience a material increase in ownership concentration by institutional shareholders (“treated workers”), relative to employees of firms that experience a similarly sized increase in institutional ownership level but not concentration (“control workers”). We find that the cumulative earnings of the treated workers decline by 10% of their annual earnings over the next six years. Workers with higher earnings and top managers, such as chief executives, experience larger earnings losses. The earnings losses are larger for dedicated and activist institutions. The increase in ownership concentration slows down firm hiring. The collection of evidence is consistent with increased shareholder power reducing rent sharing with employees.