Hiring Difficulties and Firm Growth

Abstract

We estimate the causal impact of hiring difficulties on firms’ outcomes. Using a shift share identification strategy, we show that hiring difficulties have negative effects on firms’ employment, capital, sales, and profits. Quantitatively, a one-standarddeviation change in firm exposure to hiring difficulties explains around 9% of the variation in firm size. Firms adjust to hiring difficulties by increasing wages and the retention rate of incumbent workers, and by lowering their hiring standards. The effects of hiring difficulties are larger in expanding sectors and areas, for labor intensive and financially-sound firms, and for non-routine cognitive, high-skill, highwage, and specialized occupations.

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