DP17891 Hiring Difficulties and Firm Growth
This paper studies the effect of hiring difficulties on firms' outcomes. We use a shift-share identification strategy combining occupation-specific changes in the difficulty of filling job vacancies within a local labor market (the shifts) and variation across firms in their pre-sampled occupation mix (the shares). We show that hiring difficulties have negative effects on firms' employment, capital, sales, and profits. Firms partially adjust to hiring difficulties by increasing wages and the retention rate of incumbent workers, and by lowering their hiring standards. We then document larger effects of hiring difficulties for labor-intensive firms, firms in expanding sectors, and for non-routine cognitive, high-skill, high-wage, and specialized occupations. Taken together, our findings indicate that hiring difficulties are an important determinant of the growth and profitability of firms across time and space.