Predicting Labor Market Competition: Leveraging Interfirm Network and Employee Skills

Abstract

Human capital is a key component of the knowledge economy. Firms compete not only for consumers in the product market but also for human capital in the labor market. In this study, we perform an interfirm labor market competitor analysis using the online profiles of more than 89,000 employees and their career histories that span more than 3,000 public firms. Using these profiles, we characterize firms through the granular skill distribution of their employees. Also, using employee migrations across firms, we derive and analyze a human capital flow (HCF) network. Such information allows us to measure the interfirm human capital overlap in terms of similarity in their employees’ skills and HCF network structure. We show that our proposed human capital overlap metrics have superior predictive power over conventional firm-level measures in predicting future labor market competitors. We further demonstrate how our proposed metrics and the prediction framework can be incorporated into a comprehensive two-dimensional competitor analysis that includes both product and labor overlap between firms. By evaluating interfirm relationships in the product and labor markets simultaneously, this two-dimensional competitor analysis framework can help managers make strategic decisions beyond human resources, such as product development and customer relationship management.