Speaker’s Name: Yongjun Kim (Ph.D., University of Illinois at Urbana-Champaign)
This study investigates the effects of labor costs on firms’ capital investments and stock returns. I estimate wage premia across U.S. industries and show that the negative investment-return relation implied by q-theory is steeper for high wage firms than for low wage firms. Using wage premia as a proxy for labor adjustment costs, an extended investment-based model predicts the interaction effect because capitallabor complementarity implies that labor market friction also governs the investment decision. The inflexibility induced by wages offers new insights into asset prices and corporate investments.