Labor Pooling in R&D Intensive Industries

Heiko A. Gerlach, Thomas Rønde and Konrad O. Stahl

No 08-074, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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.

JEL-codes: L13 O32 R12 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-geo, nep-mic and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7417

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