Match to Grow

Nasim Sabah and Michael Zheng

♦ This study highlights a channel through which labor markets foster firm growth: the occupational alignment between an establishment’s workforce and local skills. Using occupational employment data, we construct an index comparing each establishment’s occupational mix to that of its local market. Establishments with higher match efficiency grow faster in sales and employment, driven by lower adjustment costs and greater capital investment. The effects are strongest among establishments with more skilled workers and in industries facing higher idiosyncratic cash flow risk. This employee–firm matching mechanism explains how local labor markets translate into sustained competitive advantage.

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