Olakojo, S; King, M (2023) Employment growth and R&D spending among companies that engage with the NMS laboratories. NPL Report. IEA 16

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Abstract

The impact of employment growth on firms’ R&D spending is underpinned in the accelerator principle, which plays a key role in the theory of investment. Existing evidence showed that firms which engaged with NMS experienced employment growth. However, the impact of the observed growth on their R&D spending is yet to be ascertained. This study, therefore, is centred on the short-run relationship between variations in the level of R&D spending among companies engaging with the NMS laboratories and the changing level of employment within these companies. A theoretical model which predicts that an increased rate of employment growth among companies should lead them to increase the level of investment ― some portion of which will be investment in intangible assets ― was used. Administrative data from NPL (e.g., invoicing records) and financial data from the FAME database were combined to create a company-level panel dataset for the companies that engaged with the NMS between 2009 and 2015. Estimations are based on combining a series of econometric techniques that account for missing R&D data for some of the observations. The headline results confirmed that employment growth leads to higher levels of R&D spending among the growing companies. The elasticity of R&D with respect to employment is about 0.368, meaning that a 10% increase in a company’s workforce will generate a 3.68% increase in its level of R&D spending. The study concluded that employment growth explains about 13% of the variation in private R&D spending.

Item Type:	Report/Guide (NPL Report)
NPL Report No.:	IEA 16
Divisions:	Strategy Directorate
Identification number/DOI:	10.47120/npl.IEA16
Last Modified:	06 Apr 2023 13:42
URI:	https://eprintspublications.npl.co.uk/id/eprint/9680