Productivity Spillovers Through Labor Mobility

50 Pages Posted: 2 Jun 2014

See all articles by Tom-Reiel Heggedal

Tom-Reiel Heggedal

BI Norwegian Business School

Espen R. Moen

BI Norwegian Business School; Centre for Economic Policy Research (CEPR)

Edgar Preugschat

Technical University of Dortmund

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

Do firms have the right incentives to innovate in the presence of productivity spillovers? This paper proposes an explicit model of spillovers through labor flows in a framework with search frictions. Firms can choose to innovate or to imitate by hiring a worker from a firm that has already innovated. We show that if innovation firms can commit to long-term wage contracts with their workers, productivity spillovers are fully internalized. If firms cannot commit to long-term wage contracts, there is too little innovation and too much imitation in equilibrium. Our model is tractable and allows us to analyze welfare effects of various policies in the limited commitment case. We find that subsidizing innovation and taxing imitation improves welfare.Moreover, allowing innovation firms to charge quit fees or rent out workers to imitation firms also improves welfare. By contrast, non-pecuniary measures like covenants not to compete, interpreted as destruction of matches between imitation firms and workers from innovation firms, always reduce welfare.

Keywords: efficiency, imitation, innovation, productivity, search frictions, spillovers, worker flows

JEL Classification: 031, J63, J68, O38

Suggested Citation

Heggedal, Tom-Reiel and Moen, Espen R. and Preugschat, Edgar, Productivity Spillovers Through Labor Mobility (March 2014). CEPR Discussion Paper No. DP9850, Available at SSRN: https://ssrn.com/abstract=2444871

Tom-Reiel Heggedal (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Espen R. Moen

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Edgar Preugschat

Technical University of Dortmund ( email )

D-44221 Dortmund
Germany

HOME PAGE: http://https://sites.google.com/site/epreugschat/

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