UBC Theses and Dissertations
Essays on labor and technology in asset pricing Knesl, Jiri
Technological innovations are important for economic growth but they are also a source of various risks. This thesis is a collection of three self-contained essays in which I study how technology shocks create risk for firms and households, and affect stock prices. Overall, the thesis helps us better understand the role of labor in the transmission of these shocks to stock prices. The first essay examines the asset pricing implications of technological innovations that allow capital to displace labor: automation. I develop a theory in which firms with high share of displaceable labor are negatively exposed to such technology shocks due to competition that makes technology adoption appear profitable but in equilibrium erodes the expected profits. Empirically, I develop a firm-level measure of displaceable labor share, based on detailed job classifications from the O*NET database, and find that firms with high displaceable labor share have negative exposure to technology shocks. A long-short portfolio based on this new measure is highly correlated with macroeconomic measures of technology shocks. I further show that firms with negative exposure to these technology shocks earn a 4% per year return premium. At the firm level, I provide support for the hypothesis of costly automation following technology shocks. In the second essay, I study how investment shocks affect different types of labor. I construct panel data sets of geographical areas, manufacturing industries and individual workers to examine the effects of investment shocks at three different levels of observations. I utilize the cross-sectional variation in routine intensity of occupations across these three panel data sets. I show that investment shocks are an important source of job displacement and labor income risk. The third essay examines how a firm's capital intensity can affect the measurement of firm's exposure to investment shocks by a popular measure, the IMC portfolio. I show that this measure suggests a considerable premium for an exposure to investment shocks when applied in a sample of capital-intensive firms but almost no premium for the same exposure when applied in labor-intensive sample. I extend a model from previous literature by capital intensity to provide a possible explanation.
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