Working Papers

Local Labor Market Conditions and Stock Options Incidence

A Study of the Information Technology Sector


This article focuses on .rms’ use of stock options to reduce exposure to labor market pressure during industry booms. If .rm stock price is positively related to industry growth and industry growth is positively related to compensation at alternative employers, then stock options can be used to index total employee compensation without increasing wages. The empirical analysis, based on a proprietary survey of information technology (IT) professionals, demonstrates that stock option incidence in the IT sector is positively correlated with regional labor market sensitivity to industry shocks. I conclude that stock options are implemented in a manner consistent with the reduction of labor market pressure.