Local Labor Match and Corporate Investments : Evidence from New Flight Routes
We exploit new flight connections from small cities to international airportsas a quasi-natural experiment to study the effects of local labor match oncorporate investments. Using a cosine similarity of occupational makeups,we find that capital expenditures, R&D, and acquisitions are higher forfirms with human capital profiles that are more similar to those of the localworkforce. The effects are more pronounced among financially constrainedfirms and firms heavily relying on external financing. Firms with betterlocal labor match are also more likely to downsize their employments whenexperiencing negative cash flow shocks. Collectively, our findings suggest thatlocal labor match spurs corporate investments by lowering labor costs and byincreasing ex-ante investment incentives