Universität Bonn

Department of Economics

Christina Brinkmann - Uni Bonn

"Do Firms Hedge Human Capital?"

Abstract

I study labor hoarding in relation to firms’ risk management. Leveraging German administrative data on short-time work, combined with matched employer-employee data and firm financial information, I develop a firm-level measure of hoarded labor. Labor-hoarding firms exhibit larger comovements of their cash flows (CF) with demand fluctuations, illustrating the upside potential of hoarded labor acting as a capacity increase. However, labor hoarding is not linked to higher overall CF volatility; instead, it is linked to reduced unhedged foreign exchange (FX) risk as one specific contributor to CF volatility. This finding is consistent with a trade-off between more hoarded labor and less hedging of an unrelated price risk, as suggested by a stylized model I develop. The model further offers firm-specific human capital as a dimension of firm heterogeneity driving labor-hoarding choices. Using proxies for firm-specific human capital as instrumental variables for hoarded labor, I establish a causal link between labor hoarding and unhedged FX risk, facilitated by operational and financial hedging strategies. These findings offer a new perspective on firms’ willingness to assume risks in the context of labor market rigidities and institutions.

Additional information:

  • Speaker: Christina Brinkmann
  • Time: Wednesday, 16.10.2024, 14:45 - 16:00
  • Location: Faculty Lounge, Room 0.036
  • Further links:
  • Organizer: Finance Group
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