Competition for Talent: Evidence from a Network of Labor Market Peers

Abstract

I construct a novel network of labor market peers that is denser and more centralized compared to product and capital market networks. Using my labor market network, I provide robust evidence that focal firms spend more on R&D and suffer more talent outflows when their labor market peers increase the benefits they offer their talented employees. Focal firms use capital markets to finance their labor market responses, issuing stock and increasing cash holdings. The findings highlight the predictive effect of firms’ labor market actions and provide evidence that ties labor markets and capital markets together.

Keywords: Networks, Peer Effects, Peer Groups, Talent Wars

JEL Classification: D83, D85, J33, O34