Human Capitalists

Abstract

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 increased substantially since the 1980s, representing thirty-six percent of total compensation to high-skilled labor in US manufacturing in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In manufacturing, the inclusion of equity-based compensation almost eliminates the decline in the high-skilled labor share, and reduces the total decline in the labor share by about one-third. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb-Douglas (1928). We also provide additional regression evidence of such complementarity.

Keywords: Human Capital, Labor Share, Equity Compensation, Factor Shares, Inequality