Abstract: Classical economic theoretical models usually assume that there is no friction in the labor market, so the study of classical asset pricing mainly focuses on capital factors, the study of labor factors is in a relatively "weak" position, however, according to production function, the relevant changes of labor factors should be reflected in the level of enterprise value, so what is the impact of labor factors on stock market?
Based on the stickiness of labor cost, a measure index of the proportion of labor cost is constructed and the influence of the proportion of labor cost on stock market pricing is studied for first time based on China's A-share market from 1999 to 2017. There is a positive correlation between the proportion of labor cost and enterprise risk by theoretical analysis and model derivation, furthermore, it is proved that the proportion of labor cost is positively related to enterprise risk through regression analysis. According to the compensation principle of positive correlation between risk and return,it is found that the proportion of labor cost has positive prediction ability for stock return through regression analysis and portfolio analysis, the impact of labor cost ratio on stock returns is not related to the nature of property rights, R&D investment level, firm competitiveness and industry nature. Inspired by the above conclusions, this paper explores whether the proportion of labor cost can be used as a pricing factor? First, the labor cost risk factor is constructed with the help of long-short portfolio. Fama-MacBeth regression proves that the proportion of labor cost is a risk factor for stock return. Second, the proportion of labor cost is not a redundant factor relative to Fama-French five factors. Finally compared with Fama-French three factor model and five factor model, the pricing models including FF3 factors or FF5 factors and the proportion of labor cost have better explanatory capability on cross-sectional stock returns.
This paper has reference value for the investment decision of investors, the formulation of enterprise salary system, the government's promulgation of labor protection policy and the reform about labor cost. In addition, it enriches the literature about the influencing factors of stock returns and economic consequences of labor cost.

Key words: labor cost ratio, stock return, risk factor, portfolio analysis