BlueSky Thinking Summary

In the early days of Covid-19, back in 2020, a stunning 40% of American businesses did report issues related to filling open positions.

Surprisingly, such a trend persisted at around 30% even before the pandemic.

This persistent dynamic raises some very deep questions about how hiring challenges affect the bottom line profitability and operations for firms.

Maddalena Ronchi of Kellogg and her co-authors estimate these effects by evaluating data from job vacancy information on French firms from 2009 to 2017.

They found that doubling the time to fill a position was related to a 3 percent drop in profits—with even very large, successful firms quite substantially affected.

Their findings showed that, in particular, the problems of hiring could lead to a 5 percent decline in sales and an 8 percent cut in both employment and capital investment among labor-intensive firms and those belonging to the growing sectors.

This means that reducing such frictions of hiring through policies of stimulating labor supply or by directed training is an approach to enhance growth, researchers argue.

Currently, however, these challenges are often ignored in nudging reforms at the risk of stunting the growth of the most productive and expanding firms.