DP5285 Labour Pooling in R&D Intensive Industries

Author(s): Heiko A. Gerlach, Thomas Rønde, Konrad O Stahl
Publication Date: November 2005
Keyword(s): agglomeration, labour pooling, R&D
JEL(s): L13, O32, R12
Programme Areas: Industrial Organization, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5285

We investigate firms' incentives to locate in the same region to gain access to a large pool of skilled labour. Firms engage in risky R&D activities and thus create stochastic product and implied labour demand. Agglomeration in a cluster 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 cluster, they tend to invest more and take more risk in R&D compared to spatially dispersed firms. Agglomeration is welfare-maximizing, because expected labour productivity is higher and firms choose a more efficient, technically diversified portfolio of R&D projects at the industry level.