Moving the Boundaries: Firm-to-Firm Connections in a Frictional Labor Market

The project examines the role of personal connections between individuals serving on corporate boards in firms’ ability to adjust their workforce. Building on previous research on informal contacts in job search and on firm networks, we analyze how connections between firms, in the form of shared board members and family ties, affect labor mobility and resource allocation.

The analysis is based on detailed Swedish administrative data that link comprehensive information on board members to population registers. This makes it possible to identify both board interlocks and family relationships across firms. These data are combined with linked employer–employee records and firm accounts. To study how firm connections affect adjustment to different types of shocks, the analysis also draws on information on sickness absence and firm procurement.

The project first documents how widespread informal connections between firms are. It then examines how such connections influence labor market mobility by facilitating worker movements between connected firms. Labor flows between connected firms are compared with flows between firms without such connections to assess whether mobility within networks differs from more competitive recruitment. A particular focus is on whether mobility between connected firms more often reflects mutually beneficial adjustments rather than one firm recruiting workers away from another. Finally, the project studies whether firm connections contribute to a more efficient use of labor when firms are exposed to shocks, such as unexpected sickness absence or changes in demand.