Polarization, Purpose and Profit

We present a model in which firms compete for workers with a taste for a nonpecuniary job attribute, such as purpose, sustainability, ES/CSR, or working conditions. Some firms acquire flexible production technologies, which allow them to offer jobs with different levels of the desirable job attribute. In a competitive assignment equilibrium, flexible firms become polarized and cater to workers with extreme preferences for the job attribute. Firm polarization increases with technological progress and industry concentration. More polarized sectors have higher profits, lower average wages, and a lower labor share of value added. Traditional investors prefer to buy shares in polarized sectors, while socially responsible investors prefer to invest in less polarized sectors. Firms in more polarized sectors are more valuable and have higher stock returns than firms in less polarized sectors.