Abstract:
This paper presents direct evidence on how firms' innovation is affected by access to knowledgeable labor through co-worker network connections. We use a dataset that matches patent data to administrative employer--employee records from "Third Italy" - a macro-region with many successful industrial clusters. Establishment closures displacing inventors generate supply shocks of knowledgeable labor to firms that employ the inventors' previous co-workers. We estimate event-study models where the treatment is the displacement of a "connected" inventor (i.e., a previous coworker of a current employee of the focal firm). We show that the displacement of a connected inventor significantly increases the hiring of connected inventors. Moreover, the improved access to knowledgeable workers raises firms' innovative activity. We provide evidence supporting the main hypothesized channel of knowledge transfer through firm-to-firm labor mobility by estimating IV specifications where we use the displacement of a connected inventor as an instrument to hire a connected inventor. Overall, estimates indicate that firms exploit displacements to recruit connected inventors, and the improved capacity to employ knowledgeable labor within the network increases innovation.
