The impact of labour resources on business R&D

Par Ludovic Rheault
This paper empirically examines the impact of labor resource composition on private research and development (R&D). A model is considered in which a sector of the economy, intensive in skilled labor, endogenously produces technological change through intentional R&D activities. Provided factor complementarity, the model predicts that a relative increase in the supply of unskilled labor culminates in a contraction of the private research sector, while a relative increase in the supply of skilled labor has the opposite effect. Those expectations are tested using a panel data set of OECD countries (1971-2003). New estimators are developed to assess the elasticity of R&D outlays with respect to factor supplies, distinguishing between relative endowment effects and scaling effects. Overall, the results are shown to be consistent with theoretical expectations, and stylized policy implications are discussed. This study brings forth an important qualification to the conclusions of recent papers emphasizing a positive relationship between population and innovation. The findings suggest that business R&D can thrive with a slow growing population, notably when the intensity of unskilled labor declines, as was the case during the past decades in OECD countries.
JEL codes: O30, J11, J21
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