Labor Pooling in R&D Intensive Industries
Heiko A. Gerlach
University of Queensland - School of Economics
University of Copenhagen - Department of Economics; Center for Economic and Business Research (CEBR); Centre for Economic Policy Research (CEPR)
Konrad O. Stahl
University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)
ZEW - Centre for European Economic Research Discussion Paper No. 08-074
We investigate the interplay between firms' R&D decisions and labor market competition, and how this influences equilibrium location choices and welfare. Firms engage in risky R&D activities and thus create stochastic product and implied labor demand. Spatial agglomeration is more likely in situations where the innovation step is large and the probability for a firm to be the only innovator is high. When firms agglomerate, they tend to invest more in R&D compared to spatially dispersed firms. Agglomeration is welfare maximizing, because expected labor productivity is higher and firms choose a more efficient, diversified portfolio of R&D projects at the industry level. The latter aspect is ascertained by data from German firms in R&D intensive industries.
Number of Pages in PDF File: 45
JEL Classification: L13, O32, R12working papers series
Date posted: September 29, 2008 ; Last revised: November 6, 2012
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