The Role of Specialized Knowledge and ‘Know-How’ for Firm Total Factor Productivity: Evidence from Breeding and Racing in the Equine Industry

Using matched employer–employee data, this paper provides evidence from an industry that is gaining attention due to its contributions to rural and regional growth and preservation of permanent grasslands. The equine industry exemplifies a rural industry where specialized knowledge is central to the experiences, products and services provided, but where there is little evidence of the productivity gains associated with skilled labour. We apply control function and IV methods for estimating a long-run production function (2010-2022) that accounts for simultaneity bias and adjustment frictions in rural labour markets. Several variables are used to measure firms’ access to skilled labour, such as the employment share with specialized training in horse breeding and hippology, the accumulated stock of occupation-specific experience for all workers belonging to a firm and firms’ access to a local pool of skilled labour. Results show that occupation-specific training is associated with an average productivity premium of 11% across firms in the industry. Examinations of intra-industry heterogeneity reveals large differences and it is only firms specializing in horse racing that can obtain productivity advantages by increasing the share of workers with specialized skills. The results of this paper have implications for policy and the investment decisions made by firms.