Illiquid Equity, Labor Mobility, and Talent Allocation

Fri, 01/14/2022 - 12:00 / 13:00

203, Viale Romania

Speaker: Daniel Bias , Stockholm School of Economics

Abstract

Using stock market shocks to randomize the completion of a firm's liquidity event, I provide evidence that illiquid equity constrains labor mobility and talent allocation. I find that illiquidity reduces the mobility of employees with vested equity, while employees with unvested equity remain unaffected. The lock-in effect of illiquidity for vested employees is distinct from the well-known retention effect of unvested equity. I show that, by reducing labor mobility, illiquidity interferes with the assortative re-matching of talent in the economy. Recent trends of innovative startups staying private for longer can impose an externality on the broader economy by trapping employees in sub-optimal employer matches.