Labor flows, skill-relatedness and firm productivity

Present paper aims to estimate the effect of the labor flow, as a major source of knowledge spillover between companies, on firm productivity. Previous research found that the difference in productivity of the sending and receiving firms basically influences the effect of labor flows on the productivity of the receiving firm. Labor mobility has long been considered as a major source of knowledge flow across firms because the hiring firm benefits from the embodied knowledge and skills of incoming labor, which has a positive effect on wages and productivity in the receiving company. Despite the well-developed literature, the effects and the interactions of relative productivity, technological relatedness, and organizational similarity have not been looked at in a common framework. The present paper aims to enter this research niche by answering the following question: How do skill-relatedness, size similarity, and company ownership contribute to knowledge flows across firms with different productivity levels?

In order to answer the above questions, we look at labor mobility across Hungarian firms in the 2003-2011 period. The employer-employee linked panel database integrates data collected by the Hungarian health, pension, treasury, tax and education authorities. Relative productivity of the sending and receiving firm is standardized by the average productivity of the sending and receiving industries. We construct the skill-relatedness network of industries based on intercompany mobility of employees and distinguish related and non-related labor inflows because the industry-specific skills of employee’s matter in organizational learning and therefore in productivity growth. In order to capture the effect of similarities of organizational culture we include ownership variables and the size difference because the new employee can exert a more positive effect in a firm with similar ownership or size. Linear regressions with industry-region-year fixed effects and firm ID-clustered robust standard errors were used for the analysis.

Our results suggest that labor flows from more productive firms and from skill-related industries, and particularly from the same industry outperform other labor flow categories in increasing firm productivity. The effects of ownership structure and size of the sending firm are significant in the bivariate analysis, but in the multivariate models, these effects are mitigated by the relative productivity effect.