Essays on employee welfare: Do firm-level risks and executive-level taxes matter for wage-related mistreatment, employee safety or pensions?

This PhD thesis comprises three empirical studies addressing a pivotal dimension of employee welfare: wage-related misconduct, safety and pensions. The first study, titled “Working amid climate uncertainties: The disciplining effect of climate risk on employee treatment”, examines the nexus between firm-level climate risk and wage theft, a major form of employee mistreatment. Examining this question is particularly important given the prevalence of wage theft, coupled with the inconclusive anecdotal reports and lack of empirical evidence on how climate risk may impact the phenomenon. Using extensive data on wage and hour violations, we provide robust evidence that wage theft is less prevalent in firms with high climate risk perception. To mitigate endogeneity concerns, we employ matched sample analysis, a test of coefficient stability, instrumental variable estimation, and difference-in-differences analysis around the adoption of the Paris Agreement. Additional analyses indicate that the negative relation between climate risk and wage theft is more pronounced in labour-intensive firms and firms that rely heavily on skilled labour, suggesting the role of human capital as the main channel. Further cross-sectional analyses reveal the results to be stronger for firms with high media coverage but attenuated in the presence of financial constraints and resilience against climate change. Finally, we demonstrate that heightened perceptions of climate risk are associated with the implementation of more robust labour management policies, while wage theft adversely impacts employee performance and productivity. Taken together, the findings of the study suggest that perceptions about climate risk can incentivise firms to exhibit improved employee treatment by cutting down on wage theft. Thus, it emphasises the significance of climate risk in shaping firms’ labour treatment policies. The second empirical study, titled “CEO tax burden and workplace safety”, examines whether and how a CEO’s capital gains tax burden (that is, the tax liability arising on a CEO’s investment in the firm) impacts employees’ safety at the workplace. This is an important research question to examine in the light of the increasing social cost of workplace safety, and the recent findings in the literature highlighting the significant role CEO tax burden in corporate outcomes. Using comprehensive data on work-related injuries from the Occupational Safety and Health Administration, we find more cases of work-related injuries in establishments of firms led by CEOs with high capital gains tax burdens. The findings remain robust to several sensitivity analyses and tests designed to mitigate endogeneity concerns, including matched sample tests, instrumental variable analysis and a difference-in-differences analysis using the staggered reductions in state-level capital gains taxes. Further analyses suggest reductions in health and safety investments and increases in employee workloads as the potential mechanisms underscoring the results. In cross-sectional tests, we find that the observed relationship strengthens when CEOs have low levels of outside wealth and when firms are financially constrained. Moreover, we find that CEOs with high tax burdens compromise workplace safety, irrespective of whether these tax burdens are measured at the federal and state levels. However, the effect is more pronounced with state tax burdens. Finally, we provide evidence that CEO stock sales increase following a higher incidence of work-related injuries, suggesting that CEOs with high tax burdens may be compromising safety to unwound their locked-up stocks. Collectively, this study highlights the significant role of capital gains taxes in shaping employee welfare by demonstrating that the expected capital gains tax liabilities on CEOs’ investment in a firm can undermine employees’ safety at the workplace. The final empirical chapter, titled “Firm-level political risk and pension buyout”, investigates whether the political risk faced by sponsor firms affects the likelihood of pension buyout transactions. Pension buyouts allow defined benefit plan sponsors to shift pension obligations to third-party insurers through a bulk annuity contract in exchange for a premium. Given the increasing concerns about political risk among DB plan sponsors, it is interesting to examine how this risk may affect the likelihood of pension buyouts. Using a sample of U.S DB plan sponsors from 2012 to 2021, we find a lower likelihood of pension buyout transactions when firms are exposed to a high political risk. The findings support the notion that corporations reduce immediate excessive spending in response to political risk. To address endogeneity concerns, we subject the findings to (1) a matched sample analysis, (2) a test involving only firms with a buyout record, (3) a falsification test, (4) a test of coefficient stability and (5) an instrumental variable analysis. The documented results persist through these tests, confirming the reliability of our findings. Cross-sectional tests indicate that the reducing effect of political risk on the likelihood of pension buyout is more pronounced in the presence of financing constraints, union coverage, and during the Obama administration. Evidence from supplemental tests also suggests that political risk negatively affects overall derisking and the extent to which employees and pension assets may be covered in a buyout transaction. Overall, the findings of this study underscore the significance of political risk in shaping corporate decisions regarding employee pensions. In summary, this PhD thesis highlights how climate-related risk, managerial capital gains tax burden and political risk shape different dimensions of employee welfare.<p></p>