Talent Recruitment and Firm Performance

Abstract

Firms rely heavily on their investments in human capital to achieve profits. This research takes advantage of detailed information on worker performance and confidential information on firm revenue and operating costs to investigate the relationship between talent migration and firm profitability in major league sports, one of the few industries in which detailed information about the past performance of each individual worker (athlete) is known to all potential employers. I use confidential microdata from the 2007 Economic Censuses, and from the 2007 and 2008 Service Annual Surveys to investigate the link between individual worker performance and team profitability, controlling for many other aspects of the sports business, specifically taking account of the mobility of athletic “stars” and “superstars” from one team to another. The investigations in this article provide limited support for the hypothesis that hiring talented individuals (stars) will increase a firm’s profit. However, there is no convincing support for the incremental benefit of hiring superstars. The peculiar characteristics of major league sports suggest that these results are probably not generalizable.