Labor Market Peer Firms

Abstract

This paper proposes a novel measure of labor market peer firms (LMPs) by analyzing employees' internet co-viewing patterns on two major online labor market platforms, Glassdoor and LinkedIn. Using the LMPs measure, I examine whether firms that hire employees with similar skills, and thus are presumably exposed to the same labor related risks and shocks, exhibit a high comovement of stock returns and accounting-based performance variables. LMPs 1) overlap but are different from traditional product-market-based industry groupings; 2) have significant incremental power to explain stock returns and accounting-based performance measure comovements; and 3) outperform traditional industry groupings in explaining return comovements when LMPs share a higher proportion of skills with the base firm. LMPs are more likely to be selected as compensation benchmarking peers and to help explain CEO compensation. Overall, LMPs capture firms' fundamental linkages that are difficult to identify using standard industry measures.

Keywords: Peer firms, Labor market, Industry classification, Online search, Benchmarking, CEO compensation

JEL Classification: D83, G0, J01, M2