Innovation through new blood

Abstract

We model the influence of employee mobility on the transmission of knowledge between firms, assuming human capital to be an important influence on service innovation and firm productivity. To this end, we follow individual workers as they move from firm to firm, controlling for knowledge characteristics (‘absorptive capacity’) of the firm and for regional effects (agglomeration and urbanization). We measure the amount and variety of such flows, and we find statistically significant results; yet the impact of new employees on innovation and productivity seems to come more from the diversity of source firms than from the number of new employees, and effects differ markedly between small and larger firms.