R&D activity, employment and employment composition: Evidence from India

Abstract

This paper examines the employment effects of R&D activity using firm-level data from two India surveys collected by the World Bank. To tackle the potential endogeneity, we use the innovation-reason indicator as the instrumental variable for R&D activity. Both OLS and IV estimates show three findings. First, consistent with the literature, R&D activity has significantly positive effect on employment of permanent workers. Second, different from the literature, R&D activity has no significant effect on the share of nonproduction workers in permanent employment. However, firms with R&D activity hire relatively more skilled production workers in permanent production employment than those without. Third, firms with R&D activity hire relatively less temporary workers than those without. The last two novel findings provide evidence of skill-biased technological change for populous less-developed countries like India.