Firm Productivity Growth and its Relationship to the Knowledge of New Worker

Abstract

Using linked employer-employee data, productivity growth at a firm is related to the firm’s exposure to outside knowledge, proxied by the difference between the hiring firm’s productivity and the productivity of the new worker’s previous employer. The estimated relationship is compared to the predictions implied by both the knowledge spillover and worker quality channels. While not a causal relationship, the multi-factor productivity results are consistent with the predictions of a worker quality channel in which positive assortative matching between workers and firms acts as a signal of the unmeasured worker quality that will benefit the hiring firm. When firm productivity is measured in terms of labor productivity, support is also found for knowledge spillovers occurring from more to less productive firms through the labor mobility channel. Further investigation suggests that this knowledge spillover pertains to production technology knowledge, allowing the firm to operate at higher levels of capital intensity, and not multi-factor productivity knowledge, that would allow the firm to operate its current inputs more efficiently.