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Jyrki Ali-Yrkkö, Reda Cherif, Fuad Hasanov, Natalia Kuosmanen, and Mika Pajarinen
Do workers hired from superstar tech-firms contribute to better firm performance? To address this question, we analyze the effects of tacit knowledge spillovers from Nokia in the context of a quasi-natural experiment in Finland, the closure of Nokia’s mobile device division in 2014 and the massive labor movement it implied. We apply a two-stage difference-in-differences approach with heterogeneous treatment to estimate the causal effects of hiring former Nokia employees. Our results provide new evidence supporting the positive causal role of former Nokia workers on firm performance. The evidence of the positive spillovers on firms is particularly strong in terms of employment and value added.
Jyrki Ali-Yrkkö, Reda Cherif, Fuad Hasanov, Natalia Kuosmanen, and Mika Pajarinen

observation of and interaction with other workers/firms. Knowledge spillovers are typically understood as a flow of knowledge from one entity to another ( Ramadani et al. 2017 ). It is a process of the transmission of knowledge to others beyond the intended boundaries ( Fallah and Ibrahim 2004 ) and represents the external benefits from the creation of knowledge, accruing to parties other than the creator ( Agarwal et al. 2010 , Hur 2017 ). In this study we examine knowledge spillovers of former Nokia employees that were hired by other Finnish firms. We argue that Nokia

Jyrki Ali-Yrkkö, Reda Cherif, Fuad Hasanov, Natalia Kuosmanen, and Mika Pajarinen

necessarily represent the views of the IMF, its Executive Board, or IMF management. I. ABSTRACT Do workers hired from superstar tech-firms contribute to better firm performance? To address this question, we analyze the effects of tacit knowledge spillovers from Nokia in the context of a quasi-natural experiment in Finland, the closure of Nokia’s mobile device division in 2014 and the massive labor movement it implied. We apply a two-stage difference-in-differences approach with heterogeneous treatment to estimate the causal effects of hiring former Nokia employees. Our

International Monetary Fund. European Dept.

percent between 1989–1994. In 2008–2010, close to 48 percent of the employees leaving Nokia joined a firm that is greater than 11 years old, suggesting an absence of a great shift towards innovative activity in young startups. We may observe a reversal of trend since 2010, but will have to wait for newer data to become available to confirm this conjecture. Outflows of Nokia Employees (conditional on remaining in private sector employment) (Share of Total Outflows) Sources and Notes: OECD, Pajarinen and Rouvinen (2013) in ETLA Reports No 10, Finland

International Monetary Fund. European Dept.

affect 4,700 ex-Nokia employees in Finland, or about 0.2 percent of the labor force. Another structural challenge is the decline of the wood and pulp industry resulting from the contraction in the global demand for paper. The question therefore is whether Finland has an environment conducive to the required adjustment that will continue to foster innovation and entrepreneurship outside past patterns and would help the economy to rebound. Shares of Gross Value Added (Percent of gross value added) Sources: Statistics Finland and Fund staff calculations

International Monetary Fund. European Dept.
This Selected Issues paper on Finland discusses that the country is struggling to recover from the Great Recession, indicating that deeper, structural issues may be holding back growth. Estimates of potential output for Finland are an important part of the toolkit for policymakers—but they come with a degree of uncertainty. As this paper illustrates, the use of different methodologies and assumptions can lead to different results. However, there are indications that Finnish potential output growth is low at this juncture. From 1997 to 2007, potential growth, independent of the choice of smoothing, averages 3.2 percent per year. In 2013, that average has dropped to 0.2 with several of the models producing negative growth. This result indicates that the lack of a recovery in Finland is largely structural in nature. Therefore, any indication that the output gap is closing is due to falling potential rather than a pickup in growth. This leads to the advantages of structural reforms aiming to enhance Finland’s long-term capacity. Total factor productivity enhancing measures could be crucial in helping the economy recover despite the time it takes to implement them.