Match to Grow

Abstract This study proposes a specific channel through which labor markets facilitate firm growth: the occupational alignment between an establishment’s workforce and local skills. Using occupational employment statistics, we construct an index that compares each establishment’s occupational mix to that of its local market. Establishments with higher alignment grow faster in sales and employment. This growth comes primarily through lower adjustment costs and higher capital investment. We also show that the effects are most pronounced in establishments with a higher share of skilled workers and industries with higher idiosyncratic cash flow risk. This employee–firm matching channel helps explain how local labor markets translate into competitive advantage.