Talent Market Competition and Firm Growth

How does competition for talent affect firm growth? Combining administrative occupational employment microdata with job posting data, we construct a novel measure of firms' talent retention pressure (TRP) based on their talent's outside options stemming from local talent market competition. We validate our measure by showing it captures CFOs' subjective talent retention concerns and predicts firms' talent outflows. Equipped with the measure, we find that (i) TRP significantly dampens firms' capital investment---a causal relationship that we establish using an instrumental variable; (ii) when facing increased TRP, firms exhibit inelastic retention responses in terms of improving employee compensation and satisfaction but instead post more jobs for talent, resulting in lower subsequent talent productivity; and (iii) TRP dampens primarily laggard firms' growth but not the large superstar firms', leading to limited impact on aggregate U.S. investment but increased industry concentration.