Defensive Hiring and Creative Destruction

Jesus Fernandez-Villaverde, Yang Yu () and Francesco Zanetti ()
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Jesus Fernandez-Villaverde: University of Pennsylvania
Yang Yu: Shanghai Jiao Tong University
Francesco Zanetti: University of Oxford

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: Defensive hiring of researchers by incumbent firms with monopsony power reduces creative destruction. This mechanism helps explain the simultaneous rise in R&D spending and decline in TFP growth in the US economy over recent decades. We develop a simple model highlighting the critical role of the inelastic supply of research labor in enabling this effect. Empirical evidence confirms that the research labor supply in the US is indeed inelastic and supports other model predictions: incumbent R&D spending is negatively correlated with creative destruction and sectoral TFP growth while extending incumbents’ lifespan. All these effects are amplified when ideas are harder to find. An extended version of the model quantifies these mechanisms’ implications for productivity, innovation, and policy.

Keywords: Productivity growth; innovation; R&D; patents; creative destruction (search for similar items in EconPapers)
JEL-codes: E22 L11 O31 O33 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2025-03-11
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