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Defensive Hiring and Creative Destruction

Author

Listed:
  • Jésus Fernández-Villaverde
  • Yang Yu
  • Francesco Zanetti
  • Jesús Fernández-Villaverde

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.

Suggested Citation

  • Jésus Fernández-Villaverde & Yang Yu & Francesco Zanetti & Jesús Fernández-Villaverde, 2025. "Defensive Hiring and Creative Destruction," CESifo Working Paper Series 11753, CESifo.
  • Handle: RePEc:ces:ceswps:_11753
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    More about this item

    Keywords

    productivity growth; innovation; R&D; patents; creative destruction;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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