R&D restructuring during the Great Recession and young firms

• Published in: International journal of industrial organization 2022-03, Vol.81, p.102819, Article 102819
• Main Author: García-Vega, María
• Format: Article
• Language: English
• Subjects: Automation/Mechanization of R&D; Firm performance; Great Recession; Innovation; Job polarization; R&D; Skill-upgrading; Young firms
• ISSN: 0167-7187
• DOI: 10.1016/j.ijindorg.2021.102819

•I provide evidence of mechanization and skill-upgrading of R&D for young firms during the Great Recession of the late 2000s.•I use a difference-in-difference approach and propensity score reweighting estimator, for a panel of more than 12,000 Spanish firms.•Young firms during the Great Recession substituted medium and low-skilled R&D workers by high-skilled workers and machines. These effects are mediated by the firms’ financial health. In this paper, I examine whether the Great Recession of the late 2000s (henceforth abbreviated as GR) had an effect on the organization of R&D in young versus older firms. Using a difference-in-difference approach and propensity score reweighting estimator, for a panel of more than 12,000 Spanish firms from 2005 to 2014, I compare young firms with older firms before and after the GR. I show that young firms implemented three key compositional changes in their R&D policies during the GR as compared to older firms: a) they reduced their R&D employment by firing medium and low-skilled R&D workers; b) they hired high-skilled R&D workers; and c) they increased their capital investments for R&D. These changes in R&D policies suggest that, during the GR, young firms substituted medium and low-skilled R&D workers by high-skilled workers and machines. These effects are mediated by the firms’ financial health.