Abstract This study reveals how firm-level political risk affects firm labor decisions. I empirically analyze how firms' labor decisions respond to firm political risk using a sample of 3,131 U.S. firms from 2002 to 2022. My analysis shows that a one standard deviation increase in firm-level political risk is associated with a 9.22 percentage point wage increase. Political risk affects wages significantly when interacted with competition, capital intensity and labor share. Moreover, my findings are consistent using various measures of firm-level political risk and wages. In addition, one standard deviation increase in firm political risk is associated with 8.94 and 30.48 percentage point decreases in employment growth and labor productivity, respectively. My study reveals that the reduction in employment growth and labor productivity is more evident when firm-level political risk is interacted with competition, capital intensity and labor share. My results remain robust after addressing the potential endogeneity issue using an instrumental variable approach.
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Emmanuel Nkansah (2024) studied this question.
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