The Effect of Public R&D on Researchers’ Wages and Employment: Empirical Evidence from Denmark

Abstract

Government intervention in R&D activity through public R&D expenditures is an established practice across nations. Public R&D, whether in the form of direct subsidies or intramural expenditures, may however not be unequivocally positive. First, public R&D expenditures can have a direct crowding-out effect by merely substituting for private R&D. Second, due to an inelastic supply of researchers, the effectiveness of public R&D may be limited and instead translate into higher wages rather than additional employment.In this paper, I aim to cast light on the former issue by assessing the effects of public R&D on the labour market for researchers in Denmark. The Danish context is especially relevant in light of the Globalisation Agreement (Globaliseringsaftalen) from 2006, in which the Danish government decided to raise its public R&D expenditures and to educate more researchers.I therefore investigate two main relationships: (1) Public R&D expenditures effects on researchers’ wages, and (2) Public R&D effects on R&D employment.I use a panel data set of aggregate average wages, full-time employment and detailed public R&D expenditures in the period 2007-2015. To estimate the relationship, I rely on a simple reduced-form approach and employ fixed effects LSDV models.My main results indicate that public R&D is weakly associated with researchers’ wages, while a strong association with R&D employment is found.The results hence imply that the labour market is not an obstacle to public R&D expenditures as the supply of researchers is elastic in the period under investigation.