Congestion in Onboarding Workers and Sticky R&D

Abstract: R&D investment spending exhibits a delayed and hump-shaped response to shocks. We show in a simple partial equilibrium model that rapidly adjusting R&D investment is costly if the probability of converting new hires into productive R&D workers (“onboarding”) is decreasing in the number of new hires (“congestion”). Congestion thus causes R&D-producing firms to slowly hire new workers in response to good shocks and hoard workers in response to bad shocks, providing a microfoundation for convex adjustment costs in R&D investment. Using novel, high-frequency productivity data on individual software developers collected from GitHub, a popular online collaboration platform, we provide quantitative evidence for such congestion. Calibrated to this evidence, a sticky-wage new Keynesian model with heterogeneous investment-producing firms subject to congestion in onboarding and no other frictions yields hump-shaped responses of R&D investment to shocks.

Keywords: intangibles; monetary policy; R&D; innovation; team specific capital; labor adjustment costs;

JEL Classification: E22; O36;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2023-11-01

Number: 1075