Share prices and the value of workers

Quarterly Bulletin 2005 Q4
Published on 12 December 2005

By Eran Yashiv, Bank of England Houblon-Norman Fellow.

Is the value of workers in a company reflected in its share price? Traditional approaches suggest not. This article proposes an alternative: the workforce of the company can be seen as a collection of matches between workers and jobs. The company decides on forming matches, as well as on investment in physical capital, on the basis of its expectations of future profits, which also determine the share price. So there is a link between investment and hiring on the one hand and share prices on the other. This approach has implications for the analysis of share price movements, employment and investment.

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