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Title: The Effect of Labor Mobility on Corporate Investment and Performance Over the Business Cycle

Citation Type: Miscellaneous

Publication Year: 2023

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Abstract: We exploit state-level variation in the enforcement of covenants not to compete (CNCs) to study the effect of labor mobility on corporate investment and performance over the business cycle. We find that relative to firms located in states with stronger enforcement of CNCs, investment rates are more procyclical in states with weaker enforcement of CNCs, especially for more labor-intensive firms, firms facing greater competition for local workers, and firms with greater demand for skilled workers. Increased investment during economic expansions largely drives these effects, and firms appear to finance this additional investment by raising debt and equity. Higher investment rates in more mobile labor markets during expansions are also associated with higher sales growth rates, profits, and valuations. Our findings suggest that fewer restrictions on labor mobility benefit firms during economic expansions because greater mobility allows firms to take advantage of new growth opportunities by making it easier to hire qualified workers with relevant experience.

Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3721708

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Authors: Bai, John; Eldemire, Ashleigh; Serfling, Matthew

Publisher: Northeastern University

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure

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