Thomas Le Barbanchon is a visiting Associate Professor of Economics at Princeton University, in the Industrial Relations Section. His research interests focus on labor economics, public finance and econometrics.
This paper studies the role of hiring frictions on firms' growth. We leverage unique vacancy-level data matched to employer-employee datasets and to firm-level balance-sheet data within a shift-share design. We build granular shift measures of vacancies' success rates and time-to-fill by commuting zone X occupation X industry in France. Exploiting cross-firm exposure to those shifts, we show that hiring frictions have negative effects on firms’ employment, investment, sales, and profits. Firms partially adjust to hiring frictions by retaining incumbent workers, increasing their wages, and promoting them higher up into high-pay occupations. We then document larger effects of hiring frictions in expanding sectors and areas, for labor-intensive and large firms, and for high-skill and highly specific occupations. The effects are also stronger when recruitment time shocks are driven by matching efficiency shocks rather than by tightness shocks. Taken together, our findings indicate that local labor shortages are an important determinant of the growth and profitability of firms across time and space.